The headline Consumer Price Index came in today inline with expectations at 2.5%, but down from last month’s 2.9%. within the report, Shelter costs rose 5.2%.  Shelter accounts for 70% of the CPI, so a 5.2% jump in YOY Shelter costs means that mathematically, everything else is near 0%.  And with rates dropping, Shelter costs will also decline.  That will take CPI well below the 2.0% threshold over the next few months, justifying the Fed’s rate cut.

The other factor keeping CPI from 0% is the rising cost of insurance. As someone who pays a lot of car insurance and who sees homeowners insurance quotes every single day, I can attest first hand that insurance costs are through the roof.

Currently, the markets are pricing in a 1% rate drop by the end of the year. (!)