Peak Inflation—Are We There Yet?

Although the headlines of late have been dominated by rampant inflation and increasing interest rates, there may be hope on the horizon. Although this most recent cause for optimism is only premised on a single month’s worth of data, it is still welcome news to the real estate industry that has been infused with volatility and uncertainty for the past few years.

The November Consumer Price Index (CPI) report, one of the primary statistical analyses for gauging cost fluctuations within the United States economic marketplace, indicated that the year-over-year inflation rate has dipped to 7.7% after prices increased only 0.4% from October. This modest price increase was notably lower than the majority of projections from economists who anticipated much higher inflation.

Delving into the CPI numbers a bit further, it appears that the costs of several assets are coming down—to include automobiles, textiles, medicine, furniture,appliances, and food. Falling prices in these categories assisted in offsetting prices that are still increasing and brought the net inflation percentage down.

The CPI index references several independent data points to tabulate its estimated inflation rate. A primary one is the Personal Consumption Expenditures Index (PCE) which aggregates surveys of corporations as opposed to consumer feedback as to what their expenses are allocated to. The PCE monitors a broad range of goods and services to determine trends in pricing fluctuations. It is generally regarded as somewhat more stable than other indices as it excludes highly volatile markets such as food and energy that could disproportionately influence inflation estimates.

If these trends continue, it could influence the Fed’s reaction as it seeks to curb inflation levels via interest rate hikes. The Fed had announced it was planning to suspend interest rate escalations in mid-2023; however, if prices continue to lower in line with the November CPI Index data it could move forward their plans to suspend rate hikes.

Many are speculating that this recent data suggests we have hit what is called “peak inflation”—or the point when economic prices start a consistent decline from historical highs. Inflation is a nuanced concept that is partly driven by consumer behavior. When buyers anticipate price increases, they hurriedly purchase assets at the current lower price points as opposed to what they believe will be higher costs in the near future. The same phenomenonoccurs within the housing industry—when aspiring homebuyers believe that mortgage rates are set to go up soon, they rush to obtain mortgages.

This panic-induced spending typically has a proportional impact on prices. If buyers once again have confidence that the future dollar will be equitable to today’s, they will cease excessive spending. The collective effect of this trend could help reverse overall inflation and reduce the economic volatility we have been experiencing as of late.

While the U.S. gross domestic product (GDP) has fallen for two consecutive quarters, the national unemployment rate is still relatively low and corporate earnings have posted strong numbers over the past few months. More than 500,000 payrolls were injected into the U.S. economy in July 2022 alone in addition to another 2.8 million during the first six months of the year.

Actionable Insights on Demand

Informed decision-making is premised on information, but how do you convert raw data into discernable trends and comprehensible insights? That is where SettlementOne comes into play. Our team of experts provides on-demand credit reporting, property valuation, flood certification, fraud and verification services to U.S. banks, lenders, brokers, and credit unions. Look no further than SettlementOne for secure, efficient, and cost-effective solutions that streamline your business process so you can focus on delivering the bestend-product to your clients.