MBA Chart of the Week: Inflation Trends

Based on Consumer Price Index data from December, low oil prices continued to hold inflation down.  

The prices that households pay for motor fuel were down nearly 20 percent from the previous year. That contributed to CPI inflation (all items) that is only 0.7 percent higher than December 2014. Core inflation, which excludes the more volatile energy and food prices, was actually up 2.1 percent over the year. Strong shelter prices, which include rent, continue to put upward pressure on core inflation.  

The Federal Reserve’s January statement last week regarding the economic outlook was more cautious than that in December. Despite solid growth in employment in 2015, financial market volatility in recent weeks and the continued lack of any significant pickup in inflation may lead the Fed to be even more gradual with respect to rate hikes this year.   

In December, FOMC members were projecting four rate hikes in 2016, but based on last week’s FOMC statement and the inflation picture, we continue to believe that two rate increases are more likely, and that these increases may be pushed later into the year.    

To view the Chart of the Week, click https://www.mba.org/news-research-and-resources/forecasts-data-and-reports/forecasts-and-commentary/chart-of-the-week.  

(Michael Fratantoni is vice president of research and economics with the Mortgage Bankers Association. He can be reached at mfratantoni@mortgagebankers.org. Lynn Fisher is vice president of research and economics with MBA; she can be reached at lfisher@mba.org. Joel Kan associate vice president of economic forecasting with MBA; he can be reached at jkan@mortgagebankers.org).