Over the past several months, inflation news has been frustrating for those hoping for (praying for?) cuts in the Effective Federal Fund Rate (EFFR). However, a Marcus & Millichap brief indicated some silver linings.
First, in April, the headline and core consumer price indices clocked in at 3.4% and 3.6%, respectively. As such, these “cooler readings suggest the Fed is still making meaningful progress in bringing pricing pressures down,” the brief explained.
Another piece of good news? Removing housing expenses from the core CPI brings inflation to 2.1% over the previous year. Furthermore, “easing in May’s core PCE measure, a separate inflation metric that is closely watched by the Fed and will be released on the 31, as well as continued disinflation across key CPI readings over the coming months, should help facilitate the conditions needed for at least one rate cut in the remainder of 2024,” the brief pointed out.
Other real-estate issues mentioned by the brief noted that:
Rental rates continued to slow. The CPI measure for rent inflation stood at 5.5% year over year, representing its lowest level since May 2022. Noted the brief: “This pullback reflects some of the slowdown already being observed in market apartment effective rents,” while new leases carry more concessions.
Recurring payments jumped. Meanwhile, costs for vehicle insurance, electricity and medical care increased at its fastest rate in at least nine months. This, in turn, is causing some consumers to adjust their discretionary spending. The brief said retail spending on non-essential goods dropped by over 4% within the past year.
A decline in the new vehicle price index. The new vehicle price index fell by 0.4%, its first decline in 45 months. An increase in lending rates and insurance costs contributed to flatter vehicle sales. Meanwhile, “stock surpluses may weigh on US. Manufacturing production near-term, potentially softening demand for these facilities,” the brief pointed out. On the other hand, the national vacancy rate for manufacturing spaces is below 4%, with a “limited speculative pipeline.”
Eating out costs more. Finally, the food-away-from-home index increased by 4% — nearly four times the grocery segment’s pace. Again, consumers are cutting back on discretionary spending. Higher wages are also boosting pricing pressure on restaurants. This means more people are spending more on groceries, “motivating several grocers to expand footprints,” the brief said. Aldi, Sprouts, Farmers Market and Trader Joe’s are slated to occupy 1.1 million square feet nationally in 2024, “tightening vacancy in a sector already reporting a rate under 3.0% in March,” the brief said.
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