8 Strange Things in Today’s Inflation Report

While consumer prices declined more than expected in October, there were some odd parts of the inflation report that stood out more than others.

The consumer price index climbed 3.2% in October from the previous year, which was a decline from September’s 3.7% increase. Growth from the prior month was flat, the Bureau of Labor Statistics said on Tuesday. Economists surveyed by FactSet were expecting gains of 3.3% for the year and 0.1% for the month.

“We need to see more months with soft inflation data, but the stock and bond market is celebrating today. We’re set up nicely for a year-end rally,” Gina Bolvin, president of Bolvin Wealth Management Group, wrote on Tuesday. The Dow Jones Industrial Average rose 461 points, or 1.3%. The S&P 500 gained 1.8% while the Nasdaq Composite jumped 2.1%.

Many investors and economists are focusing on data points such as how the gasoline index decreased from September, or how shelter costs increased. But digging deeper into the report provides some interesting—and arguably strange—details of prices that have changed drastically in the past month.

Overall food prices increased 0.3% in October from September. While that number might not be too noteworthy, there were certain food items that stuck out. For one, the price of uncooked beef roasts increased 4.1% from the previous month, while the cost of pork chops rose 3.5%. According to reports from the Agriculture Department, total cattle and hog inventory has been declining in recent months.

But while beef roasts and pork chops cost more for the American consumer, prices for apples dropped a whopping 7.9% in October from September.

It wasn’t only food that had some funky results. The prices of laundry equipment declined 5% in the month while photographic equipment and supplies increased 6.8%.

For sports fans, admission prices for sporting events jumped 3.6% from the previous month.

“These are things that could be affected by seasonal factors,” Raymond James’ Chief Economist Eugenio Aleman tells Barron’s. The National Hockey League began its regular season schedule on Oct. 10 while the National Basketball Association began its season on Oct. 24.

For people who are looking to buy their loved one a new jacket for the holiday season, women’s outerwear prices dropped 5.9%. But wrapping that coat will cost more as the price of stationary, stationary supplies, and gift wraps was up 3.5%.

Aleman said that these individual items—while interesting outliers—aren’t heavily weighted when looking at the total report.

“There are some of these items that are so small in the overall CPI that basically it’s probably not affecting much of the direction of the overall core CPI,” Aleman said.

Even if these items aren’t heavily weighted against the total inflation outcome, consumers are sure to notice these changes as they head into stores during the holiday season.

Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

8 Strange Things in Today’s Inflation Report

New research suggests spending 40 percent of household income on loan repayments is the new normal