This morning’s release of the July Consumer Price Index (CPI) brought with it a rare event in the world of economics: a report that was refreshingly uneventful. Economists welcomed a “dull” inflation report—a sign that the Federal Reserve’s efforts to control inflation are finally paying off—after years of turbulent inflation figures.
For the first time in three years, the CPI reading has delivered what Bloomberg’s senior editor Chris Anstey described as “probably the dullest CPI we’ve had in a long while.” Analysts echoed this sentiment, using words like “tame” and “benign” to describe the latest data. As Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance aptly put it, this report is “the ultimate ‘no news is good news'” situation.
This is exactly the kind of report the Federal Reserve has been hoping for—a sign that the economic disruptions caused by the pandemic are finally fading into the background. For the average person, it’s a moment to celebrate, as the headline inflation rate has dropped below 3% for the first time since 2021.
The inflation rate’s fall to 2.9%, down from over 9% just two years ago, is an extraordinary achievement. Historically, such a rapid and smooth decline in inflation without triggering a recession is a rare feat, seen only once in the past six decades, according to former Federal Reserve Chairman Alan Greenspan.
But while there’s much to celebrate, it’s important to remember that inflation’s impact is not uniform across all goods and services.
Despite the overall cooling of inflation, many people still feel the pinch, especially when it comes to essential expenses like housing. In fact, shelter costs—comprising rent and the equivalent costs for homeowners—accounted for a staggering 90% of the monthly increase in the CPI.
Housing costs rose more than 5% year-over-year in July, making it the biggest hurdle in the fight against inflation. This is particularly significant because shelter is the largest component of the CPI basket, and its persistent rise has slowed inflation’s overall descent.
There is, however, some good news on the horizon. Mortgage rates have begun to fall, hitting their lowest levels in over a year. Last week, the average rate for a 30-year mortgage dropped to 6.47%, down from 7.22% in May. As inflation continues to cool and the Federal Reserve starts to lower interest rates—likely beginning next month—housing costs are expected to stabilize. This, coupled with an increase in housing inventory, should further ease inflationary pressures.
Despite the lack of drama in July’s inflation report, its significance is undeniable. The steady decline in inflation signals a return to economic normalcy, offering relief to both economists and everyday consumers alike. However, the persistent rise in housing costs remains a challenge, though one that appears to be on the brink of resolution. As we move forward, the hope is that this trend continues, bringing further stability to the economy and easing the financial burden on households across the country.
