Inflation Matches Expectations

Investors were focused on the inflation data this week. The results were right in line with expectations, and mortgage rates ended with little change. 

Since overall inflation is still elevated, it is not surprising that the majority of individual components continued to show significant price increases. In particular, shelter (housing) costs remained stubbornly high and again were responsible for the largest portion of the increase. Used car and gasoline prices also rose substantially from March. By contrast, food prices were flat from the prior month.

Mortgage activity, which was recently at the lowest levels in 25 years, has picked up a bit lately. According to the latest data from the Mortgage Bankers Association (MBA), purchase applications rose 5% from last week, yet are still down 32% from last year at this time. Applications to refinance jumped 10% from the prior week but remain down 44% from one year ago.

Investors will continue to keep a close eye on the banking sector for signs that troubles are spreading to other institutions. They will also watch to see if Fed officials elaborate on their plans for future monetary policy. The biggest economic report released next week will be Retail Sales on Tuesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. In addition, Housing Starts will come out on Wednesday and Existing Home Sales on Thursday.