This week’s update will be a bit more data driven, so bear with me, but as always there are reasons for this! Monthly mortgage rates dropped slightly last week, with the average 30-year fixed rate falling to 6.67%, marking the third straight week of declines. This led to a 27% jump in refinancing applications, which made up nearly half of all mortgage activity, though overall refinancing remains low due to many homeowners already having much lower rates from previous years. Applications to buy homes fell 4% for the week but were still 4% higher than the same time last year, supported by steady demand and slowly growing housing inventory. Interest rates rose slightly to start this week and have generally held up after the CPI and PPI data were reported.
So what does this mean?
Consumer prices (CPI) rose by 2.7% annually in November, slightly faster than October, with a 0.3% monthly increase, according to the Bureau of Labor Statistics. Core inflation, which excludes food and energy, remained steady at 3.3% annually. The rise was largely driven by shelter costs, which accounted for 40% of the overall increase. Other notable changes included a 2% jump in used vehicle prices and a 0.4% rise in food costs, while energy prices edged up 0.2% monthly, but fell 3.2% over the year. Interestingly enough, within the food data, the measure of cereals and bakery products fell 1.1% in November, the single biggest monthly decline in the measure’s history going back to 1989, according to the BLS. My sweet tooth is overjoyed!
Finally, the producer price index (PPI), which tracks wholesale prices, rose 0.4% in November, exceeding expectations of 0.2%, and increased 3% year-over-year, the highest increase since February 2023. Core PPI, excluding food and energy, matched forecasts with a 0.2% monthly rise. However, food prices jumped 3.1%, with eggs soaring 54.6%, driving the largest monthly increase in final-demand goods prices since February. In labor news, weekly unemployment claims rose sharply to 242,000, higher than the expected 220,000. The mixed data suggests progress on lowering inflation may have slowed.
A quick note touching on the “food” differences between the two data sets: While food costs for producers surged substantially (PPI), consumer-level food price increases (CPI) were more modest. This may reflect a lag between rising wholesale costs and their eventual impact on retail prices, or a temporary buffering of price pressures by retailers. I only bring this up to touch on a hot topic always brought up in our client meetings. This is something on ALL of our minds and the thing we probably experience and feel the most often. Perhaps the pressures already being mounted by the current and incoming administrations along with simple consumer frustration are contributing to the differences. Regardless, any downward movements for the consumer are more than welcome.
So why does all of this matter to us? The Federal Reserve is meeting next week for their last gathering of the year (December 17th – 18th). This data solidifies expectations that the Federal Reserve will likely cut interest rates by 0.25% at its upcoming meeting as inflation remains above the Fed’s 2% target. While there are no guarantees, the Fed has been responsive thus far. Let’s hope that trend stays in place.
We hope you are enjoying your holiday season!