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The May CPI rose .1% headline, .2% less than expected but the core gain of .1% was right in line with forecasts. Headline CPI y/o/y fell 1.3%, the most since April 1950 and was .4% greater than expected. The core rate rose 1.8% y/o/y. In the CPI, food prices make up a larger portion than energy and thus the .2% gain in energy prices was more than offset by a .2% drop in food prices. Owners Equivalent Rent, 24% of the overall CPI, rose .1% and this component has been a source of debate on where the CPI goes from here as some believe the decline in home purchases and drop in the home ownership rate will boost rents while on the flip side some think many homes for sale will in turn be rented and thus will keep a lid on rents. Apartment rents rose .1%. Net-net, with the continued uptick in energy prices, particularly gasoline and move higher in food prices, the headline CPI declines will start to recede and the core rate remains stubbornly positive.

On Nov 25th ’08, the Fed introduced their plan to buy MBS in order to lower mortgage rates to help jump start the housing market. Over the next 4 months, the average 30 yr mortgage rate fell around 140 bps to a low of 4.61% according to the MBA. However, the main beneficiary of the drop in rates in that time period ended up being refi’s, not purchases. While lowering one’s monthly payment is great, the plan’s focus was on the demand side of housing and the cumulative dollar amount of savings with refi’s is not large enough to move the needle in a $13.5T economy. With the 30 yr rate now back to 5.5%, the MBA today said the level of refi’s have now round tripped back to the Nov 21st level. Purchases fell 3.5%. ABC confidence fell 2 pts to -49 led by the Personal Finance component which fell to the lowest level since early Feb.

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