Intelligent Investment

Economic Watch: December Rise in Inflation Will Add to Fed Caution

January 11, 2024 2 Minute Read


Executive Summary

  • The Consumer Price Index (CPI) increased by 0.3% in December to an annual rate of 3.4% vs. respective expectations of 0.2% and 3.2%. The increase was largely driven by shelter costs.
  • Core inflation, which excludes food and energy prices, also rose by 0.3% for the month to an annual rate of 3.9%, compared with expectations of 3.8%.
  • December’s CPI report will add to the Fed’s caution following a stronger-than-expected December jobs report and supports our view that interest rate cuts won’t begin until Q2.
  • CBRE expects that real estate investment activity will remain relatively sluggish in the first half of 2024 before beginning to pick up in the second half.

The Bottom Line

December’s stronger-than-expected rise in inflation does not change our outlook for monetary policy and real estate activity in 2024. This is because we expect that shelter costs, which helped drive prices higher in December, will decline during the year. Although we anticipate some volatility in monthly inflation data, we also expect that inflation will end the year close to the Fed’s 2% target. In essence, this CPI report will reinforce Fed caution and supports our belief that the central bank won’t begin cutting interest rates until at least Q2.

We continue to expect that economic uncertainty and high interest rates will limit real estate investment activity during the first half of 2024. However, we expect that as inflation nears the Fed’s target, long-term interest rates will also slowly decline and lead to a pickup in investment activity in the second half. Leasing activity will remain somewhat resilient but will continue to be tempered by economic uncertainty.

Figure 1: CBRE House View

Image of data table