Inflation cools, giving housing market some breathing room
July inflation eased to 3.4%, while shelter costs also slowed. The softer reading could help limit upward pressure on mortgage rates.
Inflation eased slightly in July, a welcome development for a housing market where mortgage rates have been climbing and buyers remain sensitive to changes in monthly payments.
Consumer prices rose 0.1% from June and 3.4% from a year earlier, down from a 3.5% annual increase in June, according to the U.S. Bureau of Labor Statistics. Core inflation, which excludes volatile food and energy costs, rose 0.2% for the month and eased to 2.5% annually.
The housing component offered another encouraging sign. Shelter costs rose just 0.1% in July and 3.2% over the past year. Still, shelter accounted for roughly two-thirds of the overall monthly increase in consumer prices, BLS reported. Rent and owners’ equivalent rent each rose 0.3% in July.
The slower inflation reading matters because persistent inflation can put upward pressure on borrowing costs. Mortgage rates have already moved higher this summer, climbing from 6.43% in early July to 6.69% in early August, a 13-month high, according to Realtor.com.
Realtor.com Senior Economist Jake Krimmel said the latest report is unlikely to dramatically change the Federal Reserve’s outlook, however.
“None of this is likely to move an increasingly divided FOMC,” Krimmel said, adding that expectations for the Fed to hold rates steady in September increased only slightly after the report.
That means buyers watching rates may want to focus less on any single inflation report and more on the broader trend.
Yahoo Finance reported that the cooler July inflation reading strengthened expectations that the Federal Reserve will keep rates unchanged in September. The Fed will get another round of inflation and employment data before its Sept. 15-16 meeting, meaning the outlook could still shift. Inflation remains above the Fed’s 2% target, even as July’s softer reading could reduce pressure for another rate increase.
For the housing market, the message is cautiously positive: Inflation is moving in the right direction, but buyers should not count on an immediate mortgage-rate retreat. The next round of inflation and employment data could help determine whether borrowing costs get some breathing room this fall.
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