I wanted to share a quick update on how the latest economic news could impact mortgage rates and the housing market. Whether you’re actively looking to buy, refinance, or just keeping an eye on the market, these trends are important to understand.

May Inflation Report: Cooler Than Expected

May brought some encouraging news on the inflation front, with the Consumer Price Index (CPI) rising just 0.1% month-over-month—a sign that price pressures may be easing. On an annual basis, inflation inched up from 2.3% to 2.4%, still comfortably below most projections and far from recent historical highs.

Energy Prices Decline, Food Sees Modest Rise

A key contributor to May’s subdued inflation reading was the decline in energy and gas prices, which offset a small rise in food costs. These shifts helped keep overall CPI growth muted, despite inflation’s slight annual uptick.

Core CPI Holds Steady

The Core CPI, which doesn’t include food and energy, also posted a 0.1% monthly increase, with its annual growth rate holding firm at 2.8%. This stability in core inflation suggests that underlying price trends are currently well-contained.

Shelter Costs Still Driving the CPI

Shelter is the largest driver of both overall and core inflation, representing 35% of the total CPI and 44% of the core CPI. With such a large share, changes in shelter expenses have a major impact on overall inflation trends. That said, some economists caution that CPI data may overstate shelter costs due to lagging inputs that don’t reflect more recent rental market conditions—meaning real inflation may be even lower than the data suggests.

Tariffs Not Yet Reflected in Consumer Prices

Despite ongoing concerns about tariffs, May’s CPI data showed declining prices in categories like apparel and vehicles, where increases had been expected. This could mean that companies are still selling off older inventory purchased at lower prices, or they’ve held off passing increased costs on to consumers for now.

Unemployment Claims Tick Higher

In less optimistic news, weekly jobless claims remained elevated at 248,000, the highest level since last October. Meanwhile, continuing claims rose by 54,000, reaching nearly 1.96 million—their third straight week above the 1.9 million mark.

Labor Market Weakness Is Emerging

The recent uptick in unemployment claims, especially continuing claims, hints at growing weakness in the labor market. Since many individuals only receive unemployment benefits for 26 weeks, sustained high continuing claims could signal slower hiring and a tightening job market.

The All-Important Question: What Will The Fed Do Next?

It’s important to note that the Federal Reserve has a dual mandate: to maintain stable prices and to support maximum employment. Despite low inflation readings and increasing signs of weakness in the labor market, most economists expect the Fed to keep the Fed Rate unchanged at its next meeting on June 18 and will likely to take a cautious “wait and see” approach as new data emerges. Keep an eye on both price trends and employment figures in the months ahead.