News About Inflation Is Positive, But Not Enough

Expect a difficult interest rate environment for several more months.

A little encouraging news on inflation, but probably not enough to cause the Fed to change its course just yet.

The usual metric that is used, the Consumer Price Index for All Urban Consumers (CPI-U), actually decreased by 0.1% in December 2022, increasing by 6.5% from the previous year. This is a decrease from the 7.1% change year over year in November. Numerous publications claim that the decline was consistent with mainstream projections.

Overall, that’s a great indicator since it indicates that prices are actually starting to decline rather than merely slowing off. Things become more chaotic as you go deeper. Energy expenses decreased by 4.5%, which was mostly the result of dropping gasoline prices. However, the price of food, which cannot be disregarded, increased by 0.3% between November and December, which immediately puts a strain on the wallets of typical customers.

After rising by 0.2% in November, the core inflation index—which measures all goods except food and energy—rose by 0.3% in December. Inflation was even worse in this regard.Shelter, or houses and multifamily buildings, was a significant factor. In November, it had increased by 7.1% year over year, and in December, it had increased by 7.5%. Fuel oil (for buildings that use it to heat) and energy services both stood out in the 12-month price growth rate at 41.5% and 15.6%, respectively.

The Federal Open Market Committee is expected to raise the target range for the fed funds rate by 25 basis points at their upcoming meeting, Oxford Economics predicted in an email. “The December CPI is another small step in the right direction, but it doesn’t alter our forecast,” Oxford Economics said. The Fed will want proof that they have stopped inflation and that it is returning to their 2% aim, so this probably won’t be the last rate increase this cycle. The reaction to the December CPI in the financial markets and Fed Funds futures was rather modest.

And as Bill Adams, chief economist for Comerica Bank, said in emailed remarks, “Inflation should continue to decrease in 2023, allowing the Fed to suspend rate hikes this spring and begin to progressively cut rates in the fall.” However, the economy was already deteriorating towards the end of 2022, and in 2023 it would probably go through a slight recession.

One potential worry for the CRE housing sector is that housing costs continue to be a significant contributor to inflation and outsized growth. This may make customers angry and bitter, and it might even prompt requests for further control.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for commercial properties for sale and lease.



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