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Inflation Surges

Overview: Over the past week, stronger than expected inflation data was negative for mortgage markets, while the other major economic reports caused little reaction. As a result, mortgage rates ended the week higher.


The Consumer Price Index (CPI) is a closely watched inflation indicator that looks at price changes for a broad range of goods and services. Core CPI excludes the volatile food and energy components and provides a clearer picture of the longer-term trend. In June, core CPI surged 0.7% from May, well above the consensus forecast for an increase of 0.5%. On an annual basis, core CPI was 5.9% higher than a year ago, down from an annual rate of increase of 6% last month, but still far above the readings around 2% seen early in 2021. Due to the strong inflation data, investors have now priced in another 75 basis-point rate hike at the next Fed meeting on July 27.

Looking at the individual components of the CPI report, the food index jumped a massive 1% from May. Shelter costs, which make up about one-third of the index, rose 0.6% for the month and were up 5.6% from a year ago. Rental costs climbed 0.8% in June, the largest monthly increase since 1986. Medical costs posted record monthly gains in some areas. Airline fares were one of the few components showing a decline in June, falling 1.8% from May, but still 34% higher than a year ago.

The key labor market data released over the past week also exceeded expectations. Against a consensus forecast of just 250,000, the economy added 372,000 jobs in June. The unemployment rate was unchanged at 3.6%, just above the lowest level since 1969. Average hourly earnings, an indicator of wage growth, were a substantial 5.1% higher than a year ago, though down from an even larger annual rate of increase of 5.3% last month. In a separate report, unfilled job openings remained near record levels above 11 million, over 4 million more than in January 2020 prior to the pandemic. In short, the labor market remains extremely tight.


Core CPI (annual % change)


Week Ahead

July 15 — Retail Sales report

July 19 — New Residential Construction report (aka Housing Starts)

July 20 — Existing-Home Sales report

July 21 — European Central Bank meeting


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