Home Depot Stock Rises Amid Lower Inflation Data

Shares of Home Depot (HD 2.47%) saw an increase today following the release of the core Consumer Price Index (CPI) figures for December, which were lower than anticipated.

This news positively impacted the stock market overall, as declining inflation is beneficial for the economy in various respects, and Home Depot stands to gain significantly.

By 10:07 a.m., the company's stock had risen by 3.2% in response to the news.

Will the Housing Market Finally Turn?

The overall CPI actually climbed in December, showing a year-over-year increase of 2.9% and a month-over-month rise of 0.4%. This was up from 0.3% in November and marked the fastest rate in at least seven months.

Nevertheless, the core inflation rate, which excludes the more unpredictable categories of food and energy, decreased to a 3.2% annual growth rate, or 0.2% month-over-month. Economists had predicted an annual growth rate of 3.3%.

Slowing inflation benefits Home Depot as it provides relief to consumers facing higher prices. More crucially, it raises the likelihood that the Federal Reserve will opt to lower interest rates later this year. The housing market is highly responsive to interest rate changes, and elevated mortgage rates since the pandemic have led to a slowdown in home sales, directly affecting Home Depot's performance.

In its recent forecast, the Fed indicated it may implement two rate cuts this year, although this outlook could shift if inflation continues to decline.

Home Depot has faced challenges due to the sluggish housing market, and lowering interest rates could support a recovery for the home improvement retailer.

What's Next for Home Depot?

In its third-quarter earnings report, Home Depot reported another decline in comparable sales, and growth is anticipated to remain subdued until the housing market makes a resurgence.

The peak selling season, spring, is approaching; however, substantial rate cuts are unlikely before this time. That said, the decline in inflation will ultimately benefit Home Depot and its prospects.

Jeremy Bowman has positions in Home Depot. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.

HomeDepot, StockMarket, Inflation