Inflation sees the lowest annual rise since 2021

The Consumer Price Index (CPI), the main measure of inflation, increased 0.2% in September, a similar increase consumers saw in August and July, the Bureau of Labor Statistics reported.

Over the last 12 months, the index increased 2.4%, the lowest yearly increase since February 2021. A rise in food and shelter costs made up 75% of the total increase in September. The shelter index rose by 0.2% in September while the food index increased by 0.4%.

Rising auto insurance premiums, medical care costs and airline fares also all drove the increase in CPI. Balancing out these increases are the recreation and communications indexes, both of which decreased month over month in September.

Energy costs fell significantly in September, as well. The energy index fell 1.9% over the month, after declining 0.8% in August.

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As inflation inches toward 2%, the Fed may cut rates soon

Although the CPI rose in September, the increase wasn’t as large as it has been the last three years, signaling to the Fed that it may be time to lower rates again.

The Federal Reserve has a goal of 2% inflation before it will significantly cut rates, so a small rise in the CPI is good news for consumers, despite high housing and food prices holding on.

Experts predict the Fed is poised to cut rates soon, after a half percentage point reduction in September. This was the first rate cut in four years and has had a direct impact on mortgage rates.

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Mortgage rates struggle, hovering around 6%

Mortgage rates hit a two-year low after the initial interest rate cut in September, with 30-year rates dropping to 6.08%. The drop in rates was temporary, with rates continuing to rise again. As of October 3rd, 30-year mortgage rates averaged 6.12%, according to Freddie Mac.

The short-lived dip in rates has had a positive effect on the market, with pending home sales rising 2% year over year at the beginning of October, Redfin reported. This rise is the largest increase in three years. Buyers flooded the market after the initial rate cut by the feds, helped by weeks of rates slowly dropping in August.

Prospective homebuyers shouldn’t get too excited, however. Experts don’t predict rates will fall by much more, but potential rate cuts at the end of the year could change that outlook. Major lenders don’t see rates dropping below 6%, with many predicting rates to hover between 6.2% to 6.4%.

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