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CBRE Economic Watch: Annual Inflation Falls Below 3% in July, Paving Way for Two Rate Cuts This Year – Image Credit Unsplash+
Executive Summary
- The Consumer Price Index (CPI) rose by 0.2% in July and by 2.9% year-over-year. The monthly gain met expectations, while the annual gain was slightly below estimates of 3.0%.
- Price increases were largely driven by housing costs, while energy prices were unchanged month over month.
- Core inflation, which excludes food and energy prices, met expectations of 0.2% for the month and 3.2% over the past year.
- Slightly lower annual inflation paves the way for the Fed to begin cutting interest rates by at least 25 basis points in September. We expect another cut in December.
- The Fed’s rate cuts and lower bond yields should lead to increased commercial real estate investment activity later this year.
The Bottom Line
July’s inflation reading supports CBRE’s view that the Fed will begin cutting interest rates in September. At 3.2%, core CPI was at its lowest rate since April 2021.
Housing prices increased by 5.1% year-over-year and accounted for nearly 70% of the core inflation increase. We expect housing prices to moderate over the coming months. Despite sticky service sector inflation, the overall rate should continue to fall toward the Fed’s 2% target.
Although we expect continued market volatility, lower bond yields will be a tailwind for capital markets activity. We expect overall investment activity in 2024 will be near 2023 levels and will accelerate going into 2025.
Figure 1: CBRE House View
This article originally appeared on CBRE.