The Breakdown:

The Consumer Price Index (CPI) was reported last week, and it came in lower than estimated! Note, CPI measures consumer-level inflation. In October, CPI increased by 1.4% while it declined by 0.5% year-over-year.

As we've discussed in the past, we prefer to look at Core CPI, which strips out the more volatile food and energy prices. Even Core CPI came in lower than expected, with a 0.3% increase in October and a decline of 0.3% annually. The cost of shelter makes up a significant portion of Core CPI, so they are a major factor in the month-to-month increase. We may begin to see a more moderated cost of shelter though! Zumper reported that national median rent decreased by almost 1% for both one and two-bedrooms from September to October.

As you may know, inflation is calculated on an annual basis, accounting for the current month and the previous 11 months. When October CPI was reported, it took the place of October 2021 reading. Moving forward, the new inflation readings will replace older ones that are much higher, so we will likely see inflation numbers move lower. Given that inflation is the enemy of fixed investments like Mortgage Bonds, this is great news!

Despite the signs that the inflation reading will begin to trend downward, small businesses are reporting that inflation is still their biggest problem. The Small Business Optimism Index was reported at 91.3 in October, marking almost a full year of the index reporting lower than the 49-year average of 98.

Yesterday, the Producer Price Index for October was reported, so look for that info in next week's breakdown. Additionally, we'll dive into some important housing data as Housing Starts, Building Permits, and Existing Home Sales data will be reported later this week. Stay tuned!