MARKET UPDATE - Inflation Has Fully Returned To Pre-Pandemic Levels

Dear Landlords,

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MARKET UPDATE - Inflation Has Fully Returned To Pre-Pandemic Levels

Every month, the market anxiously awaits the CPI report and often reacts significantly to it if it comes in above or below expectations.

Inflation plays a big role in determining Federal Reserve policy decisions, so the CPI report is basically interpreted as a strong indication of what the Fed is going to do at their upcoming meetings.

Despite some initial headlines labeling the 2.44% YoY CPI in September "hotter than expected," or something along those lines, the report offered no big surprises or movements.

Disinflationary or deflationary trends remain in place across most items in the CPI, and by all indications, these downward trends in inflation should continue. That is, we have not seen the bottom in CPI inflation yet.

That is good news for REIT investors, because further declines in the CPI in the months ahead should clear the way for several more Fed rate cuts in the foreseeable future, which in turn will put downward pressure on long-term interest rates and bond yields. All else being equal, lower long-term interest rates and bond yields should translate into better fundamental REIT performance.

More good news is that year-over-year CPI inflation has now returned back to its pre-COVID level from early 2020:

Data by YCharts

What gives us confidence that the YoY CPI will continue to fall for a while longer?