Hi Friends, July finally brought some infla tion news that the bond market had been looking for. The Fed’s favored inflation measure, Personal Consumption Expenditures (PCE), showed a 0.1% increase in May. The year-over-year inflation rate fell from 4.3% to 3.8%, indicating a slowdown in inflation. We are heading closer to the 2% target the Fed is looking for before they start to cut their target rate from the current 5.5%.
The June Consumer Price Index (CPI) report showed that overall inflation increased by 0.2%, which was lower than estimates of 0.3%. Year over year, inflation declined from 4% to 3%, which was lower than the 3.1% expected. Inflation has declined sharply from the 9.1% peak and continues to make progress every month since that peak.
The Core rate, which strips out food and energy prices, increased by 0.2%, which was also lower than estimates. Year over year, Core CPI decreased from 5.3% to 4.8%, again lower than estimates of 5%.
The June Producer Price Index (PPI) report showed that overall producer inflation increased by 0.1%, which was lower than the 0.2% expected increase. Year over year, producer inflation fell from 0.9% to only 0.1%. This was also much lower than esti mates of 0.4% and the lowest level since August 2020 when it was negative. Essentially, there is really no whole sale inflation from last year.
The Core rate, which strips out food and energy prices, rose 0.1%, also one-tenth lower than estimates. Year over year, core inflation declined from 2.6% to 2.4%, which was better than estimates of 2.6%.
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Despite these better-than-anticipated inflation numbers, a clear indicator that the Fed’s rate hikes are working at lowering inflation, the Fed is anticipated to increase their target rate another .25% at their July 25-26 meeting. Hopefully, they recognize that their rate hikes have been working and this can be the last rate hike we see for a while. I have to generate these newsletters at mid-month, so you will have received this newsletter after the Fed’s July rate decision.
I still think we will see a solid reduction in mortgage rates by the end of this year and that everyone who took out a new mortgage after May 2022 will be able to benefit from a refinance in the next 6 to 12 months. I am getting prepared to work with all my past clients to start putting together their paperwork so we can strike when mortgage rates hit a better zone in the fourth quarter of this year or in the first quarter of 2024. Please feel free to reach out for a free mortgage review to see if you should start preparing for the next refinance run.