CPI Inflation As Expected With Rates Slightly Higher

What Is Happening Today

Mortgage rates are slightly higher today following the release of the December Consumer Price Index. The inflation report came in close to expectations and did not provide a strong push in either direction for rates. As a result, mortgage bonds are modestly weaker, but still moving within a familiar range as markets look for a clearer catalyst.

Overall, today’s data helped confirm that inflation is continuing to cool gradually, even if progress remains uneven. With no major surprises in the numbers, mortgage rates remain relatively stable as investors turn their attention to upcoming economic reports later this week.

Inflation Check In

Headline inflation rose 0.31% month over month and is up 2.68% year over year
Core inflation, which excludes food and energy, increased 0.24% and held at 2.6% year over year
Shelter costs rose 0.4% for the month and continue to be a major driver of inflation
Lodging away from home jumped sharply, adding pressure to the report

Inflation remains close to where markets expected, reinforcing the idea that progress is being made, just not in a straight line.

Labor Market Snapshot

Weekly ADP data shows an average of 11,750 jobs added per week over the past four weeks
That translates to roughly 47,000 jobs created over the period
Prior weeks were revised slightly lower

While job growth remains soft, recent readings suggest conditions are improving from the weakest levels seen late last year.

Small Business Sentiment

Small business optimism ticked up slightly in December\
Hiring plans declined from 19% to 17%
Compensation plans increased, signaling continued wage pressure
Business outlooks were mixed, with optimism and caution both rising

Small businesses are showing modest improvement in confidence, but hiring intentions remain restrained.

Housing Demand Signals

The national housing index rose 7 points month over month in January
Buyer activity increased meaningfully compared to December
Fewer buyers are reporting slow market conditions
More respondents are seeing price reductions, easing pressure on affordability

Housing demand is showing early signs of improvement as affordability stabilizes, even though pricing power remains limited in many markets.

What’s Coming Up Next

Wednesday: Mortgage Applications, Producer Price Index, Retail Sales, Existing Home Sales
Thursday: Initial Jobless Claims
Friday: Industrial Production and Capacity Utilization

These reports will help determine whether markets can break out of their current holding pattern.

Bottom Line

Today’s inflation report did little to change the broader outlook for mortgage rates, but it did help confirm that inflation is continuing to move in the right direction overall. While shelter and travel related costs remain sticky, core inflation stayed in line with expectations, keeping rates relatively steady.

At the same time, housing demand is slowly improving as buyers adjust to current rate levels and affordability conditions stabilize. With several key economic reports ahead, markets are likely to remain cautious, but any meaningful shift in labor or inflation data could quickly change the direction for mortgage rates.