CPI report has investor’s focus during a light week in economic news. Overall, it held no surprises with lower mortgage rates ending the week.
CPI Shows Longer Term inflation Trend
The CPI Report (Consumer Price Index) is a watched inflation indicator. CPI report looks at price changes for a broad range of goods and services. However, Core CPI excludes the volatile food and energy components. This is to try and provide a clearer picture of the longer-term inflation trend. Core CPI in December was up 5.7% from a year ago. It matches the consensus forecast, but down from an annual rate of 6.0% last month.
Used Car Price Drop According To CPI Report
Current CPI report shows that used car prices dropped 2.5% in December. With used car prices be high since January 2021, this could indicate a good time to buy. While still up sharply from a year ago, airline fares also showed a steep monthly decline. Housing costs, which account for roughly one-third of the CPI index, continued to post significant gains in December. However, this component generally operates with a lag. Newly signed rental agreements suggest that this area will provide downward pressure on overall inflation readings in coming months.
CPI Report Shows Inflation Slowing
According to CPI report inflation remains far above the readings around 2.0% seen early in 2021. 2% is the stated target level of the Fed. To help reach this goal, the Fed plans to raise the federal funds rate at future meetings. Both Fed officials and investors anticipate the peak in rates to be reached soon. Officials have stated that rates will be held steady at their peak level through the end of 2023. While investors anticipate that slower economic growth will force the Fed to begin cutting rates later in the year.
Retail and Housing Reports
With the current CPI Report investors will continue to look for Fed guidance on the magnitude of future rate hikes and bond portfolio reduction. Retail Sales will come out on Wednesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will come out on Thursday and Existing Home Sales on Friday. Mortgage markets closed on Monday in observance of MLK Day.
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