Inflation is cooling down but housing costs going up.

North American equities markets climbed to the highest level in a month after the US Consumer Price Index report showed that prices are cooling down. S&P 500 and Nasdaq have advanced 4.16% and 5.85% and Canada’s S&P/TSX composite has added 5.03% this year.

December inflation report showed a 6.5% year-over-year increase in the level of prices which is down from 7.1% in November and in line with expectations. the decrease was driven by lower energy prices while food and shelter increases were still at high levels. The core inflation which takes out the volatile food and energy component stood at 5.7%. 

 Markets were expecting the number to be lower but still a sign that may compel US Federal Reserve to slow or even stop the interest rate increase.

Although housing prices are coming down in US and Canada, shelter inflation which has a 30% weight in the CPI number increased.

The increasing rent prices and owners’ equivalent rent which takes higher mortgage rates into consideration are the reason why housing inflation is showing a high. The potential house buyers have given up on their plans and turned to rent and with higher mortgage rates, rents continue to go higher.