Inflation at both the wholesale and consumer levels can have a big impact on the markets and home loan rates. Here’s what you need to know.
What is the Producer Price Index? The Producer Price Index (PPI) measures inflation at the wholesale level by measuring the average change in selling prices received by domestic producers of goods and services over time. PPI measures price changes from the perspective of the seller.
What’s happened recently? PPI for June showed inflation at the wholesale level was hotter than expected, rising 0.4 percent due to a rise in energy costs. That being said, the June Consumer Price Index (CPI) was in line with expectations and lower than the percentage recorded in May. It will be important to see if higher inflation at the wholesale level begins to impact prices at the consumer level.
What does this mean for home loan rates? Inflation is often called the archenemy of Bonds, because it reduces the value of fixed investments. And, as noted above, since home loan rates are tied to Mortgage Bonds, if inflation continues to rise, it could have a negative impact on both Bonds and home loan rates.
However, continued tensions in the Ukraine and the Middle East could keep investors in the safe haven of the Bond markets, offsetting the impact of inflation and helping Bonds and home loan rates in the process. All of these factors will be important to watch in the weeks and months ahead.
I’ll continue to monitor geopolitical events and all other major economic reports to keep you posted on their impact on the markets and home loan rates. But if you have any immediate questions, please call or email today.