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Inflation steady; retail sales weak

Overview: While the major economic data released over the past week was weaker than expected, which should have been positive for mortgage rates, they showed little movement.


The most recent data revealed that inflation was lower than expected in September. The Consumer Price Index (CPI), the most closely watched monthly inflation report, looks at the price change for finished goods and services. Core CPI, which excludes the volatile food and energy components, was just 2.2% higher than a year ago, the same annual rate of increase as the prior month.

The data on retail sales often fluctuates from month to month, perhaps explaining the minor investor reaction, but Monday’s report was much weaker than expected by nearly every measure. In September, retail sales increased just 0.1% from August, which was far below the consensus for an increase of 0.6%. Excluding the volatile auto component, there was a small decline from August, which also represented a major shortfall versus expectations.

A lack of inventory has been holding back home sales in many regions, but the pace of home construction has not been increasing in recent months. In September, housing starts fell 5% from August, which was below the expected levels. Most of the decline came in the multi-family segment, however, as single-family starts were down just 1%. Builders cite higher material costs and a shortage of skilled workers as some of the obstacles to faster construction.

The minutes from the September 26 Fed meeting released on Wednesday contained no surprises and caused little reaction. Fed officials indicated that a gradual path of rate increases remains appropriate given the expected pace of economic growth, but they pointed to tariffs as a possible headwind in the future.

Week Ahead

Looking ahead, housing data will be the primary focus. The Existing Home Sales report will be released on Friday and the New Home Sales report on October 24. The first reading for third-quarter gross domestic product (GDP), the broadest measure of economic growth, will come out on October 26. The next European Central Bank (ECB) meeting will take place on October 25 and could influence U.S. mortgage rates as well.

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