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Inflation decelerates to 7.7% in October boosting likelihood Fed will slow down on interest rate increases

Economic Insights
Economic Insights from the MIAMI REALTORS Chief Economist

By MIAMI REALTORS® Chief Economist Gay Cororaton

It’s good news on the inflation front in October 2022. Headline annual inflation slowed to 7.7% while core inflation ─-a measure that strips out food and energy items ─ decelerated to 6.3%. On a month-over-month basis, core inflation decelerated to 0.3% from 0.6% in the prior month. Inflationary pressures are on the decline across a broad array of items: in food, apparel, vehicles, transportation, and medical services.

However, the pace of increase of prices of energy (fuel and gas) and shelter accelerated. Shelter expenditures, which account for about a third of consumer spending, rose 0.8%. Energy prices are largely outside the control of the Fed, but the cost of shelter – or rent growth—is within the Fed’s scope of control by way of the effect of mortgage rates on home sales and rent. Rent growth is already on the decline, and this will feed into lower inflation in coming months. Nationally, apartment asking rents for a 2-bedroom apartment were up just 5.7% nationally (17% annual rate in October last year), according to Apartment List.com. In the Miami-Fort Lauderdale-Pompano Beach metro area, asking rent growth has also slowed to 8% (29% annual rate in October last year).

October’s figures shows that inflationary pressures are on the decline, increasing the likelihood that the Fed could also slow on its rate increase, delivering a rate increase of  50 basis points (after four 75 basis point increases). The 30-year fixed rate mortgage is likely to hover at below 7% through the end of 2022.

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