Market Update 5/14/2023

Investors were focused on the inflation data this week. The results were right in line with expectations, and mortgage rates ended with little change.
In April, the Consumer Price Index (CPI), one of the most widely followed inflation indicators, was 4.9% higher than a year ago, down from 5.0% last month. This was the smallest annual rate of increase since April 2021. While this annual rate has fallen from a peak of 9.1% in June 2022, it remains far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed.

Since overall inflation is still elevated, it is not surprising that the majority of individual components continued to show significant price increases. In particular, shelter (housing) costs remained stubbornly high and again were responsible for the largest portion of the increase. Used car and gasoline prices also rose substantially from March. By contrast, food prices were flat from the prior month.

Mortgage activity, which was recently at the lowest levels in 25 years, has picked up a bit lately. According to the latest data from the Mortgage Bankers Association (MBA), purchase applications rose 5% from last week, yet are still down 32% from last year at this time. Applications to refinance jumped 10% from the prior week but remain down 44% from one year ago.

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