Inflation comes in hotter than expected, mortgage rates soar

Consumer prices in August rose slightly from July, all but ensuring the Federal Reserve will hike interest rates aggressively at its upcoming September meeting to tamp down inflation.

Despite decreases in the indexes for airline fares, communication, and used cars and trucks, the Consumer Price Index (CPI) rose 0.1% from the month in August, after remaining unchanged in July, according to data released Tuesday by the Bureau of Labor Statistics. Increases in the shelter (+0.7%), food (+0.8%), electricity (+1.5%), natural gas (+3.5%) and medical care (+0.7%) indexes were the largest contributors to this increase.

From a year earlier, prices rose 8.3%, a slight deceleration from July, driven primarily by the recent declines in gasoline prices.

“It is not the 9.1% or 8.5% seen in the past two months, but this number is higher than expected, given the retreat in gasoline prices,” Lawrence Yun, the chief economist at the National Association of Realtors, said in a statement.

According to the inflation data, the energy index fell 5.0% from the month prior, with Americans spending 10.6% less to fill up their tanks than they did in July. A month prior, the energy index recorded a 4.6% decrease, with the gasoline index falling 7.7%. Compared to a year ago, however, the gasoline, energy and electricity indexes are all up rising, 25.6%, 23.8% and 15.8% respectively. For the gasoline and energy indexes, these increases represent smaller yearly rises than in July, but this is the largest annual increase for the electricity index since the 12-month period ending August 1981.

The cost of rent and shelter also posted a large annual increase in August, rising 6.7% and 6.2% year over year, respectively. This is the fastest rent growth in nearly 40 years, while the increased cost of shelter accounted for roughly 40% of the 6.3% year-over-year increase in the all items less food and energy index. Month over month, the CPI excluding food and energy was up 0.6% in August, double the pace recorded in July.

Experts believe that while inflation appears to be slowing, the Federal Reserve will continue pursuing its aggressive policy. Fed observers expect the Open Markets Committee to raise rates by 75 basis points.

On the news of the CPI increase, Treasury yields on Tuesday surged, the S&P 500 index opened lower and the dollar rose.

Mortgage rates on Tuesday were at 6.28%, up 30 basis points from Monday, according to Mortgage News Daily.

The post Inflation comes in hotter than expected, mortgage rates soar appeared first on HousingWire.

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