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The Line: Consumer Prices Fell 0.1% in December

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

That may not sound like the most impressive headline, but trust me it’s good news. Why? If you insist, here’s why you should be happy:

  • It was in line with expectations. Economists don’t like surprises, so when something comes in as expected it always puts a smile on our faces.

  • It shows that inflation continues to tick down, which is what we desperately need to happen.

  • This was the first time since May 2020 that consumer prices declined from the month before.

  • And last but not least, because I told you so. If only that worked on my son!

In fairness, there are a few things to keep in mind when celebrating this news. First, the decline in prices is mostly due to the 4.5% drop in energy prices last month. Core CPI—which excludes energy and food prices—rose 0.3% last month. Second, while the 6.5% annual increase in prices over the past year is an improvement from the 7.1% rate in November, not much progress has been made over the past year. In December 2021, prices were rising at a 7.1% annual rate, so to have it fall just 0.6% over the past 12 months is a very modest improvement. Here’s the annual change in CPI over the past year:

This is the bottom line:

  • Inflation is moving in the right direction, but there’s still a long way to go before it comes down to the Fed’s target of 2%.

  • The fact that prices are drifting lower while the economy is slowing, will not stop the Fed from bringing short-term rates up a bit more.

  • We don’t need the Fed to bring inflation down to 2% before mortgage rates start falling. If you don’t believe that, see the next item.

Mortgage Rates Fell

Rates for 30-year conforming mortgages averaged 6.33% in the week ending January 12, down from 6.48% the prior week. Rates have now fallen in seven of the past nine weeks. This decline led to a 1.2% increase in mortgage applications during the week, according to the Mortgage Bankers Association. Those of us in real estate always want rates to go down, so this is certainly good news. For those real estate agents out there, this may be a good opportunity to reach out to buyers and let them know that their cost of ownership has gone down. Sellers should also be aware, as lower rates will have buyers taking another look at what’s available out there.

Weekly Jobless Claims Tick Lower

Initial claims for unemployment fell to 205,000 last week, their lowest level since September 24, 2022. With all the talk of layoffs lately, this data may come as a surprise to many of you. Honestly, it surprises me a bit too, but it probably shouldn’t given how strong the labor market has been lately. Some economists claim that seasonal adjustments around holiday periods can lead to fluctuations in the data. I say, I was bored writing that last sentence, so let’s just go ahead, ignore what I just said, and enjoy the good news.

Have a great weekend.

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