Has consumer price inflation peaked? More importantly, has the mortgage rate peaked? The slight deceleration in the latest reading suggests this, especially considering the sustained decline in oil prices. Consumer price inflation rose 8.5% in July compared to 9.1% in the prior month. That level is still high and uncomfortable but may indicate the start of a steady retreat.
The 7% monthly decline in gasoline prices was a significant contributor to moderating inflation (though prices are still up 44% from one year ago and 104% from two years ago). However, rents are still rising with a 6.3% year-over-year gain, the highest since the mid-1980s. That is a testament to the ongoing housing shortage.
If there is a sustained decline in gasoline prices and more production of apartments and single-family homes, consumer prices will pull back, encouraging the Federal Reserve policy to be less aggressive. Mortgage rates will fall. This morning the 10-year Treasury yield is at 2.7%. That should translate into 30-year mortgage rates pulling back to under 5%. Some recent potential home buyers who were pushed out of the market may now be able to get back in and qualify for a mortgage.