Consumer price growth slowed on an annual basis to the lowest level since 2021 despite a rise in consumer spending, according to the Bureau of Economic Analysis.
- M-O-M: Consumer prices rose by just 0.2% in September, up slightly from 0.1% in August and tying the highest monthly rise in the last five months.
- Y-O-Y: Price growth year-over-year slowed to 2.1% in September, down from 2.3% in August, and the lowest level since February 2021.
Rise In Spending: Personal spending surged by 0.5% in September, up from a 0.2% increase in August and marking the third-highest monthly rise this year.
- Meanwhile, personal income growth rose modestly by 0.3%, up from 0.2% in August, but still lagging behind spending. This is the third time in four months that income has risen by this amount.
What This Means For Rates: Although inflation continues to decelerate, the uptick in consumer spending could complicate the landscape for mortgage rates. Traditionally, a strong labor market and rising spending fuel economic growth—a combination that tends to keep inflationary pressures alive and discourages rate cuts. For traders and the Federal Reserve, this mix of slowing inflation with increased consumer activity presents a nuanced challenge.
Looking Ahead: With inflation trending lower but consumer demand holding strong, the path for mortgage rates may remain rocky. A cooling inflation rate is usually a signal for possible rate reductions, but the resilience in spending and income may give the Fed pause, leaving the housing market in a holding pattern as it waits for clearer signals especially so soon after an election.
