Overview: The latest key Consumer Price Index (CPI) inflation report contained a nice surprise for mortgage markets, coming in lower than expected. This outweighed stronger results in a second inflation report and the consumer spending data, and mortgage rates ended the week a little lower.
CPI is one of the most widely followed inflation indicators. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors typically look at core CPI, which excludes the food and energy components. In June, core CPI was 3.3% higher than a year ago, which is down from 3.4% last month, making it the lowest annual rate of increase since April 2021.
In contrast to CPI, another major inflation indicator released this week was significantly higher than expected. The core Producer Price Index (PPI), which measures costs for producers, was 3% higher than a year ago. This is up from an annual rate of 2.6% last month and far above the consensus forecast. It’s also the highest annual rate since April 2023. However, investors place less weight on PPI because it includes a smaller segment of the economy than CPI.
Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Although economists were forecasting a modest decline in June, retail sales were flat from May, and the results for the prior month received an upward revision. Strong gains were seen in a broad range of categories spanning personal care stores, building materials, and miscellaneous retailers. Despite higher prices and credit card rates, consumers remain surprisingly resilient.
While there is a continued need for more inventory in many regions, the latest home building data revealed mixed news. In June, overall housing starts rose 3% from May, which was above the consensus forecast. However, the strength was confined to multi-family units. Single-family housing starts dropped for the fourth straight month to the lowest level in eight months. Single-family building permits, a leading indicator of future construction, also declined.
Core CPI (annual % change)
Week Ahead
July 18
European Central Bank meeting
July 23
Existing-Home Sales report
July 24
New-Home Sales report
July 25
Q2 gross domestic product (GDP)
July 26
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index
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