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Inflation Concerns

Overview: Over the past week, stubbornly high inflation data around the world raised investor expectations for even more aggressive monetary policy tightening by global central banks. As a result, mortgage rates ended the week higher.


The Consumer Price Index (CPI) is a closely watched U.S. inflation indicator that looks at price changes for a broad range of goods and services. In September, CPI was 8.2% higher than a year ago, above the consensus forecast of 8%. Core CPI excludes the food and energy components, which tend to be more volatile from month to month, helping investors focus on the underlying trend. Core CPI in September was up 6.6% from a year ago, also above the consensus forecast, and the highest annual rate since 1982. This is far above the readings around 2% seen early in 2021, which is the stated target level of the Federal Reserve. To help reduce inflationary pressures, investors anticipate that the Fed will raise the federal funds rate by an additional 75 basis points at the next meeting on November 2.

In September, retail sales were flat from August, below the consensus forecast for a slight increase, but still were a strong 8.2% higher than a year ago. It’s important to note, though, that the retail sales figures aren’t adjusted for inflation, which increased by a similar amount annually. In other words, much of the increase in sales over the past year simply reflects higher prices. For example, although spending at restaurants in September rose 0.5% from August, prices in September rose an even larger 0.9% from the prior month, meaning that people were eating out less overall.

While more homes are badly needed in many areas, the latest data continued to disappoint. Housing starts in September declined 8% from August, which was below the consensus forecast and also 8% lower than last year at this time. Starts of single-family units remained near the lowest levels since early 2020. In addition, a separate survey of homebuilder sentiment from the NAHB declined for the 10th straight month to the smallest reading since 2012 (excluding a brief period early in the pandemic). Higher building costs and mortgage rates remained major issues holding back a faster pace of construction.


Core CPI (annual % change)


Week Ahead

October 20 — Existing-Home Sales report

October 26 — New-Home Sales report

October 27 — European Central Bank meeting

October 27 — Third quarter gross domestic product (GDP)

October 28 — Core Personal Consumption Expenditures (PCE) Price


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