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By Omar Mohammed
Reporter, Economy & Finance
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Inflation decelerated in July on a yearly basis to its lowest level since early 2021, a development that could lead the U.S. central bank to slash borrowing costs next month. The move might push mortgage rates lower and give buyers an opening to plunge into the housing market.
The Consumer Price Index (CPI) rose 2.9 percent on a 12-month basis last month, a slight decline from June's 3 percent. The last time CPI was under 3 percent was in March 2021. On a monthly basis, the CPI ticked up 0.2 percent in July after falling slightly the previous month, according to data from the U.S. Bureau of Labor Statistics.
The July inflation reading moved closer to the Federal Reserve's 2 percent target. The central bank instituted aggressive rate hikes starting in March 2022 to slow inflation that hit a 40-year high of 9 percent in June of that year.
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The increase in rates helped spark a rise in borrowing costs for home loans to their most expensive since the turn of the century, with mortgage rates soaring to about 8 percent in the fall of 2023. In recent weeks, home loans rates have declined on the back of expectations that the Fed might begin to cut borrowing costs sooner rather than later.
Slowing inflation in July has bolstered the view that policymakers might reduce rates, which currently sit at their highest in more than 20 years at 5.25 to 5.5 percent range, analysts said. Beginning in March 2022, the Federal Reserve hiked its key rate to its current range, helping to push up borrowing costs across the economy, including for home loans.
"Price growth has slowed to a level not seen since spring 2021, and today's data is further justification for a September rate cut," Elizabeth Renter, NerdWallet's senior economist, said in a note shared with Newsweek.
Housing economists suggested that July's CPI coming in as expected has strengthened the belief by investors that Fed policymakers will reduce interest rates at their meeting next month.
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"July inflation came in below the 3 [percent] rate in June, and when combined with the softer than expected July jobs report, this data could pave the way for more than the expected 25 [basis points] cut in September," Ralph McLaughlin, a senior economist at Realtor.com, said in a note.
McLaughlin added that inflation cooling without doing much damage to the economy, a scenario referred to as a soft landing, could bode well for the housing market.
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"We expect the economy to land softly and housing inventory to continue to recover," he said. "This should put downward pressure on mortgage rates this fall and winter and will set the stage for a much better season for homebuyers in 2025. We have downwardly revised our mortgage rate expectations at year's end to 6.3 [percent]."
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