Market Update: Good News for Rates This Morning Thanks to Inflation & Retail Sales Data

Blog posted On May 15, 2024

Earlier today, we received April’s consumer price index (CPI) and retail sales reports – both of which had slightly lower numbers than experts had predicted. The result has been overwhelmingly positive. Prices on mortgage-backed securities are showing strong upward movement so far, which should result in lower-trending rates for today.

Importance of the CPI

The CPI is the most widely used inflation measurement tool. It’s been a key factor influencing rate movement over the past couple of years. The higher the numbers, the worse for rates. Over the past few months, the numbers had been inching up – indicating hotter inflation. This made the markets weary about rates and whether or not the Federal Reserve would have to raise the benchmark rate. Thankfully, Fed Chairman Jerome Powell said that a rate hike would be unlikely. And this morning’s numbers solidified that was the right call.

Breaking down the numbers

The markets breathed a collective sigh of relief when April’s consumer price index came in below expectations at 0.3%. This broke the trend of hotter inflation numbers. It also brought annual inflation to 3.4%, which was cooler than March’s annual CPI level of 3.5% -- a good trend. The core CPI, which strips food and energy costs, came in as expected at 0.3% month-over-month and 3.6% year-over-year. Both of these are a downward trend from March’s levels.

The main costs keeping inflation higher were energy (up 1.1% monthly), motor vehicle insurance (up 1.8% monthly), and apparel (up 1.2% monthly). Shelter costs, which make up 45% of the core index, rose just 0.4% month-over-month and actually declined annually. Some declines in used and new car prices helped keep the CPI number from getting higher.

Retail sales were expected to rise 0.4% month-over-month in April but came in at a 0%. Core retail sales fell 0.3%. This is the lowest since January.

We’re hoping this leads to continued good news from the personal consumption expenditures (PCE) index later this month, which is the Fed’s preferred method of measuring inflation. If you have any questions in the meantime, let us know!

Sources: Bloomberg, MBS Highway, Mortgage News Daily