Inflation rose, but the increase was minimal compared to the past three years. (iStock )
The consumer price index (CPI), the main measure of inflation, rose 0.2% in September, a similar increase that consumers saw in August and July, the Bureau of Labor Statistics reported.
Over the past 12 months, the index has risen 2.4%, the lowest annual increase since February 2021. An increase in food and shelter costs made up 75% of the total increase in September. The shelter index rose 0.2% in September, while the food index rose 0.4%.
Rising auto insurance premiums, medical care costs and airfares were also all responsible for the increase in the CPI. These increases are offset by the recreation and communications indices, which both fell month over month in September.
Energy costs also fell significantly in September. The energy index fell 1.9% this month, after falling 0.8% in August.
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With inflation heading towards 2%, the Fed could soon cut rates
Although the CPI rose in September, the increase was not as large as the past three years, signaling to the Fed that it may be time to cut rates again.
The Federal Reserve has set an inflation target of 2% before significantly cutting interest rates. A small increase in the CPI is therefore good news for consumers, despite the fact that house and food prices continue to rise.
Experts predict the Fed is poised to cut interest rates soon, following a half-percentage point cut in September. This was the first interest rate cut in four years and had direct consequences for mortgage interest rates.
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Mortgage interest rates are struggling, fluctuating around 6%
Mortgage rates hit a two-year low after the initial rate cut in September, with the 30-year rate falling to 6.08%. The drop in interest rates was temporary and interest rates continued to rise again. According to Freddie Mac, 30-year mortgage rates averaged 6.12% as of October 3.
The short-lived drop in interest rates has had a positive impact on the market, with pending home sales rising 2% year over year in early October, Redfin reported. This increase is the largest increase in three years. Buyers flooded the market after the Fed’s first rate cut, helped by weeks of rate cuts in August.
However, potential home buyers should not get too excited. Experts don’t predict rates will fall much further, but possible rate cuts at the end of the year could change that outlook. Major lenders don’t see interest rates falling below 6%, while many predict interest rates will fluctuate between 6.2% and 6.4%.
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