The latest Consumer Price Index (CPI) reading from the Bureau of Labor Statistics holds eye-catching news: annual inflation is up. Previously, inflation had been decreasing consistently enough that the Federal Reserve once more cut interest rates (albeit only by 25 basis points this time) at its latest meeting this past week.
In September 2024, inflation measured by the CPI posted its lowest levels since February 2021. Since June 2024, the CPI has been consistently posting a 0.2% increase month-over-month.
The latest CPI, tracking changes from September to October 2024, also increased by 0.2%. Year-over-year, inflation rose to 2.6%. This is slightly higher than September’s inflation rate of 2.4%. However, this is also the first time in seven months the CPI rose year-over-year.
This means that the Federal Reserve’s goal of 2% inflation, which seemed to be inching closer and closer, is now a bit further away. While a slight increase in inflation had been expected, Dr. Lisa Sturtevant, chief economist of Bright MLS, said that this reversal could still make the Fed more bearish about further interest rate cuts.
“In September, the Fed had been indicating the possibility of six quarter-point rate cuts before the end of 2025. If inflation reverses course, the Fed would likely reconsider its plans for cutting rates.”
Realtor.com® Senior Economist Danielle Hale came to a similar conclusion:
“An uptick in inflation was expected in October, but today’s reading could set up a fourth quarter that would be slightly above recent September Fed projections. This could warrant a slower pace of monetary policy normalization, which would mean a rate pause in December rather than another cut. In fact, markets have dialed back expectations for another cut and are currently pricing in somewhat lower ~60% odds of that outcome.”
Hale said that the November Jobs report and the next PCE (personal consumption expenditure) Inflation index will provide a clearer picture of what moves the Fed should be expected to make.
National Association of REALTORS® (NAR) Chief Economist Dr. Lawrence Yun struck a more optimistic tone. In a statement, he said the inflation rate is still currently stable, even with the October increase, and that good progress has been made on inflation compared to the almost 10% rate seen in 2022.
“Irrespective, the overall inflation rate is normalizing, and the Federal Reserve can move away from its current restrictive monetary policy, which means further cuts to the short-term interest rate in upcoming months.”
How inflation will impact the housing market this year and next
The CPI’s shelter cost index rose 0.4% in October, twice as much as the 0.2% increase in September. The CPI’s all-items index rose 0.3%, with shelter costs accounting for over half of that.
Sturtevant said that the now uncertain trajectory of inflation means it stands to be a “wild card” for the 2025 housing market.
“Overall home sales in 2024 are likely to be right around what they were in 2023—a 30-year low in the number of transactions. With uncertainties around government spending, taxes, tariffs and immigration policy, inflation could move higher and could stifle the prospects for a housing market rebound.”
Supplementing Sturtevant’s forecasts, mortgage rates have been consistently rising the past few weeks.
Hale pinpoints these rates as responsible for the “sluggish” housing market seen recently, suggesting that “both homesellers and buyers remain interest rate sensitive, and mortgage rates are likely to continue to be an important housing activity indicator in the year ahead.”
In light of the latest CPI, those mortgage numbers now appear to be a forebearer to October’s inflation increase.
“The Fed does not directly control mortgage rates. However, they can decrease if more homes are available in the market, more workers enter the labor force and energy prices decline further,” said Yun. Looking forward to the incoming Trump administration’s macroeconomic policy, he noted that “tariffs can be inflationary in the short term, and budget deficits can push mortgage rates up.”
For the full CPI release, click here.
