Overview: Over the past week, investors were overwhelmingly focused on the key Consumer Price Index (CPI) inflation report. The results were very close to expectations, and mortgage rates ended the week with little change.
The CPI is one of the most widely followed inflation indicators. In August, CPI jumped 0.6% from July, matching the consensus forecast. The increase was mostly due to a sharp increase in energy prices, which rose 5.6% during the month. As most drivers are aware, gas prices posted enormous gains of over 10% from July. To reduce short-term volatility in the reading and get a better sense of the underlying inflation trend, investors and Federal Reserve officials often prefer to look at core CPI, which excludes the food and energy components. In August, core CPI was 4.3% higher than a year ago, matching the consensus forecast and down from 4.7% last month. This was the smallest annual rate of increase since October 2021.
While the efforts to bring down core inflation took another step in the right direction this month, there is still a long way to go. The core CPI annual rate has fallen from a peak of 6.6% in September 2022, but it remains far above the readings around 2% seen early in 2021, which is the stated target level of the Fed. Progress has been slow due to stubbornly high prices in certain areas of the economy. In particular, shelter (housing) costs remained elevated and again were responsible for the largest portion of the increase.
The Department of Labor releases the total number of new unemployment claims each week, and the latest reading was just 216,000, the lowest since February. This was down significantly from the inflated figures seen during the early months of the pandemic and close to the levels that were typical during 2019. While some other recent economic reports such as job openings have suggested some easing of the tightness in the labor market, the data on jobless claims has not displayed similar weakness.
Core CPI (annual % change)
European Central Bank meeting
Retail Sales report
September 19 — New Residential Construction report (also known as Housing Starts)
September 20 — Federal Reserve meeting (No increase in the federal funds rate expected)