Recent economic data shows that food inflation is rising at a faster rate than overall inflation, with grocery prices rising by 12%, menu prices increasing by 8.5%, and eggs becoming 49.1% more expensive through November. Inflation cooled more than expected in November, with prices rising 7.1% annually, while core CPI, excluding food and energy, measured 6% for the year ended November, down from 6.3% in October. On a month-to-month basis, prices rose 0.1%, and core CPI increased by 0.2%, its smallest increase in 15 months.
Used car prices were down 3.3% on an annual basis, and other categories such as medical care and airline fares also declined in November. However, year on year, airline prices are still up over 30%. The current inflation issues are driven by supply shocks including Russia’s invasion of Ukraine and the pandemic, while rising labor costs are a key factor.
Shelter prices (home prices, mortgage payments, and rent) remain the largest contributor to the monthly CPI increase, and the Fed is likely to approve a half-point rate hike.
In light of these economic trends, it is important to note that inflation can have a major impact on consumer spending habits. As grocery prices and menu prices rise, consumers may find themselves forced to cut back on other purchases in order to make ends meet.
For businesses, rising inflation can have a major impact on their bottom line, as they may need to increase prices in order to keep up with rising costs.
Overall, the recent economic data shows that food inflation is outpacing overall inflation, and that core CPI is rising more slowly than expected. Our economy may have turned the corner on inflation. These trends can have major implications for businesses and consumers alike, and it is important for them to be aware of the potential impact of inflation on their finances.
What about mortgage rates?
Consumer-facing mortgage rates have barely moved today, but mortgage backed securities are doing quite well. The disconnect is likely due to lenders hedging against tomorrow’s news.
It will be interesting to see the results of the Federal Open Market Committee meeting (“Fed Meeting”) today and tomorrow. An expected rate increase of 0.5% has broadly already been priced into mortgage rates, so we would expect rates to be flat on that news, and to go up if the rate increase is 0.75%.
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