April’s Consumer Price Index (CPI) figures are out, and the data, while not as encouraging as anticipated, still brings some hope for the future. We had prepared for this scenario over the last few days, drawing insights from JPMorgan, Goldman Sachs, and Citigroup. When pieced together, the numbers make sense, and the slight downturn sets us up for a potentially good summer for mortgage rates.
The April headline CPI rose by 0.37%. We had hoped for a lower figure, but the core CPI fell to 0.41%, slightly better than our worst-case estimates. Year over year, both figures declined somewhat, even in the face of increasing oil prices. This is a positive sign, as falling oil prices in the coming months should further suppress these figures.
Shelter prices, a significant component of the CPI, fell by 0.4%, halting their previous upward trend. While stubbornly high rent and owners’ equivalent rent figures have yet to show the benefits of this decrease, we anticipate seeing these benefits soon.
However, this month, the used car market proved to be a surprising factor, with prices surging by 4.4% in April. This rise significantly impacted the inflation readings, keeping them higher than we would have liked. Yet, it’s worth noting that such an increase, over 50% annually, is unlikely to continue.
Looking ahead, we are optimistic. As we move into the summer months, the comparisons for CPI from last year will be much higher, and we expect inflation to continue to fall. This and the expected decrease in shelter costs should lead to lower rates.
In addition, the Fed futures markets now predict a 100% chance of a 25 basis point cut in September. This shift indicates the market’s lack of faith in Federal Reserve Chair Jerome Powell’s plans to keep rates elevated and not cut them in 2023.
Meanwhile, data from ZipRecruiter suggests that recruiting demand and job openings are dropping across the board. This trend could signal a slower economy and lower inflation in the near future.
In summary, while the CPI data for April might not have brought the good news we had hoped for, it does suggest a promising outlook for the summer. We see the potential for lower rates and a more stable housing market, offering some much-needed relief for home buyers and investors alike. As always, keeping a close eye on these trends and adjusting our strategies accordingly is essential.
