Inflation rose 0.4 percent in September, nearly stagnant since August, according to the latest Consumer Price Index on Thursday. Economists believe the “shelter” will soon cease to be the biggest contributor to runaway prices.
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As Federal Reserve bankers continue to struggle to rein in runaway prices, housing is on the verge of losing its importance as a driving factor, according to the latest Consumer Price Index from the U.S. Bureau of Labor Statistics released Thursday. .
Inflation rose a modest 0.4 percent in September and 3.7 percent annually, almost flat from the previous month. Housing once again dominated as the largest contributor to rising prices, accounting for more than half of the increase, according to the data. Rising gasoline prices were also a contributing factor.
“Inflation that is stuck at 3.7 percent, coupled with September’s strong jobs report, could be enough to prompt the Federal Reserve to opt for one more rate hike this year,” the Fed said in a statement. Bright MLS Chief Economist Lisa Sturtevant.
Overall, housing costs rose 7.2 percent annually while rental costs rose 7.4 percent. Rental costs, however, lag behind the Consumer Price Index, which some experts predict will manifest in the form of a slowdown in CPI housing inflation due to a gradual decline in asking rents.
“Housing accounts for about a third of the overall CPI, but lags real-time data by six to 12 months, meaning weakness in the rental market is just beginning to show up in the CPI,” he said in a statement by the first American economist Ksenia Potapov. . “Over time, housing is poised to reduce overall inflation.”
The 3.7 percent annual increase remains well above the Federal Reserve’s goal of 2 percent annual inflation. In addition to September’s strong jobs report, further increases could result in even more interest rate hikes, economists warned.
Other economists, however, argued that without food and fuel volatility, the inflation index would measure 4.1 percent annually, down from 4.3 percent in August, meaning inflation is declining to a faster pace without its more volatile indices. This, coupled with the likelihood that housing inflation will ease in the coming months, indicates that a rate hike was becoming less likely.
“The September CPI report presents an encouraging picture as far as the Federal Reserve is concerned,” Potapov said. “Inflation is trending downward, especially after removing the volatile food and energy components, while the largest monthly contributor, housing, will decline in the coming months.”
Potapov also cited the recent rise in bond yields – which effectively serve as a rate hike by raising the cost of borrowing – as reason to believe the Federal Reserve would postpone rate hikes at its next meeting.
Mortgage rates hit 7.67 percent this week according to the Mortgage Bankers Association — a 20-year high — as housing demand approached a multi-decade low.
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