Inflation Rate Declines

Consumers got some additional relief from historically high prices as the nation’s annual inflation rate slid to 4.9% in April, down from 5% in the previous month, the Labor Department reported Wednesday.

The annual rate was the lowest recorded since the period that ended in April 2021. Shelter costs, including rents, were the largest contributor to inflation, up 8.1% for the year and 0.4% for the month. Food remains a big contributor to annual inflation with prices up 7.7%, though overall energy costs are down 5.1% even as gasoline prices remain elevated.

Some analysts said the slight tickdown in inflation by itself may not be enough to counter what has generally been a pullback in consumer spending on non-essential items for the past few months. “While the direction of travel is helpful, the dip is too small to register with most consumers and significantly change their habits,” Neil Saunders, managing director of research firm GlobalData, said in a statement.

Analysts are watching for whether the Fed pulls back or continues interest rate hikes enacted over the past year in an effort to tame inflation. Lawrence Yun, chief economist at the National Association of Realtors, said this week the latest Fed hike announced May 3 was unnecessary, since inflation has been easing for several months.

During a housing forum in Washington, D.C., Yun said the Fed’s rate hikes have hurt regional banks and the housing market by raising borrowing rates and potentially limiting future construction. Rents on apartments and single-family homes remain elevated even as overall inflation has been calming, he said.

Yun expects inflation to be closer to 3% by year's end. He said rent growth should be declining later this year as new entry-level units already under construction come online, with apartment construction now at a nearly five-decade high, according to an NAR statement.

Import cargo volume at the nation’s major ports is climbing back from a nearly three-year low seen in February, but declining demand among retailers is expected to keep imports well below 2022 levels heading into the fall shopping season, the National Retail Federation said this week.

“Consumers are still spending and retail sales are expected to increase this year, but we’re not seeing the explosive demand we saw the past two years,” Jonathan Gold, the trade group’s vice president of supply chain and customs policy, said in a statement May 8.

“Congestion at the ports has largely gone away as import levels have fallen, but other supply chain challenges remain, ranging from trucker shortages to getting empty containers back to terminals,” Gold said. He said the trade group is closely monitoring the status of West Coast port labor negotiations that have extended through much of the past year, with occasional service interruptions.

A monthly tracking by the NRF and consulting firm Hackett Associates found U.S. ports handled 1.62 million 20-foot-equivalent units of container volume during March, the latest month for which final numbers are available. That was up 5% from February, but down 30.6% from March 2022.

Hackett Associates founder Ben Hackett said high inflation, Federal Reserve interest rate hikes and recent bank failures have created uncertainty for consumers, which is affecting trade activity at U.S. ports. “Our view is that imports will remain below recent levels until inflation rates and inventory surpluses are reduced,” Hackett said in the NRF statement.

Mortgage applications rose 6.3% from the prior week for the week that ended May 5, amid signals that the Federal Reserve might be ready to ease up on interest rate hikes after 10 increases enacted during the past year.

Mortgage rates have been bouncing up and down during the past few weeks but declined slightly in the latest tracking, with 30-year, fixed-rate mortgages averaging 6.48%. That was down from the prior week’s 6.5% but still well above year-earlier levels, the Mortgage Bankers Association reported.

“Purchase applications increased 5% last week but were still more than 30% below last year’s level,” Joel Kan, the trade group’s deputy chief economist, said in a statement Wednesday, noting refinance applications rose 10% for the week but were down 44% from a year earlier.

“Lower rates from week to week have helped buyers in the market, but limited for-sale inventory remains a challenge for many homebuyers,” Kan said. Other analysts have noted that apartment renters are among prospective buyers still waiting for more affordable home pricing and mortgage rates.