Producer Price Index Drop Signals Lower Mortgage Rates

Producer Price Index Drop Signals Lower Mortgage Rates: What Borrowers Need to Know

If you’re wondering whether now is a good time to buy a home or refinance, here’s a clue the pros use: the Producer Price Index (PPI). When the PPI drops, it can signal that lower mortgage rates are coming.

At Gustan Cho Associates, we don’t just help borrowers get approved—we help you understand the market. And right now, if you’ve been waiting for a better rate, the latest PPI news might be the green light you’ve been hoping for.

In this guide, we’ll explain how the Producer Price Index affects mortgage rates, what’s happening in 2025, and how you can use this info to get a better deal on your home loan.

What Is the Producer Price Index?

The Producer Price Index, or PPI, measures how much it costs for businesses to make goods. If the cost to produce things goes up, businesses often raise their prices—and that’s inflation.

If the PPI goes down, inflation may be cooling off. That’s good news for interest rates, including mortgage rates.

In simple terms:

• High PPI = higher inflation = higher mortgage rates.
• Low PPI = lower inflation = lower mortgage rates.

So, when you hear that the Producer Price Index dropped, that’s a strong signal that mortgage rates may start heading down, too.

PPI Drop in 2025: Why It Matters

In July 2025, the U.S. Department of Labor reported that the Producer Price Index dropped 0.2%, surprising many economists. This followed a flat reading in June and shows that inflation on the wholesale level is easing up.

This is important because mortgage rates often react to inflation data. When inflation slows down, it typically increases investor interest in mortgage-backed securities, resulting in lower mortgage rates.

This presents several advantages for homebuyers and homeowners alike: They can enjoy lower monthly payments, improved affordability in purchasing homes, and a greater opportunity to refinance their existing loans.

How Does the PPI Affect Mortgage Rates?

Mortgage rates are influenced by many things, but one of the biggest factors is inflation.

Here’s how it works:

1. PPI measures producer inflation (the cost to make things).
2. If PPI is rising, inflation could get worse.
3. To fight inflation, the Federal Reserve may raise short-term interest rates.
4. That leads to higher mortgage rates for everyone.

But when the Producer Price Index drops, inflation slows down. Investors feel more confident buying mortgage bonds, which helps mortgage rates fall.

What’s the Difference Between PPI and CPI?

You may have also heard about the Consumer Price Index (CPI). While PPI measures the cost of making goods, CPI measures the cost of buying them.

Both indexes are used to track inflation:

• PPI: What businesses pay to produce
• CPI: What consumers pay at the store

When both PPI and CPI are low or dropping, that’s a strong sign inflation is under control—and that’s usually when mortgage rates drop.

Breaking Down the July 2025 PPI Report

The July 2025 Producer Price Index (PPI) report revealed a monthly decline of 0.2%, bringing the year-over-year PPI down to just 1.3%, the lowest rate over two years. This decrease was primarily driven by falling energy, transportation, and food processing prices. As a result of this cooling in producer prices, the likelihood of the Federal Reserve hiking interest rates again has diminished. Additionally, long-term bond yields may decrease, which could lead to a subsequent drop in mortgage rates. For those monitoring interest rates, this PPI decline could signal the favorable changes you’ve anticipated.

What Borrowers Should Do Now

If you’re looking to buy a home or refinance, here’s what the latest PPI data means for you:

1. Act Fast If Rates Drop

Mortgage rates don’t fall overnight but respond quickly to economic news. If the PPI continues to fall, you might see lower rates in the next 2–6 weeks. Lock in a lower rate before they bounce back.

2. Get Pre-Approved Today

With lower inflation and improving rate forecasts, more people will apply for mortgages. Be ahead of the game. Get your mortgage pre-approval with Gustan Cho Associates now so you’re ready to act.

3. Consider Refinancing

Refinancing could save you hundreds per month if your current mortgage rate is over 6.5% and the new rate drops below 6%. A quick review with one of our loan officers can show if it’s worth it.

Why Choose Gustan Cho Associates?

At Gustan Cho Associates, we closely watch trends like the Producer Price Index to help our clients save money.

We offer mortgage loans with:

• No lender overlays
• Credit scores down to 500
• Manual underwriting for tough files
• Fast closings in 21 days or less

Whether you’re buying your first home or refinancing after credit issues, our team can help. We’re licensed in 50 states and known for saying YES when other lenders say no.

Real Example: How the PPI Affects Mortgage Rates

Here’s how a falling Producer Price Index helped a borrower recently:

Michael, a first-time buyer in Texas, was quoted 7.25% on a 30-year fixed mortgage in early June 2025. After the July PPI report showed a surprise drop, rates started falling.

By the time Michael locked his loan in mid-July, he had a 6.5% rate, which saved him over $160 per month on his mortgage payment.

That’s the power of watching the Producer Price Index.

Will the Fed Cut Rates Because of the PPI Drop?

The Federal Reserve doesn’t directly set mortgage rates, but its actions influence them.

If the Producer Price Index continues to decline and other inflation indicators, such as the Consumer Price Index, show signs of improvement, the Federal Reserve may consider pausing rate hikes or potentially cutting the federal funds rate later in 2025. Both moves usually lead to lower mortgage rates.

Market analysts are currently predicting one rate cut in Q4 2025, especially if PPI continues to trend downward.

Don’t Wait—Lower Rates May Be Coming

If you’ve been putting off buying a home or refinancing because of high rates, then take a second look.

The drop in the Producer Price Index is your sign that better rates could be ahead.

Even a small rate drop of 0.50% can save you thousands over the life of your loan. At Gustan Cho Associates, we’re here to guide you through the process—fast, easy, and stress-free.

Final Thoughts: Watch the Producer Price Index Closely

Economic data like the Producer Price Index isn’t just for Wall Street analysts. It can help everyday borrowers like you make smart moves.

When the PPI drops:

• Inflation pressure goes down.
• The Fed may ease up on rate hikes.
• Mortgage rates often follow with a decline.

That’s your chance to save money, lock a lower payment, and move one step closer to owning or refinancing your dream home.

Ready to Lock in a Lower Rate?

📞 Call Gustan Cho Associates today at 800-900-8569 , email alex@gustancho.com, or click below to start your free mortgage pre-approval. We’re here to help you take advantage of falling rates—before they rise again. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

Frequently Asked Questions About Producer Price Index:

Q: What is the Producer Price Index?

A: The Producer Price Index (PPI) tells us how much it costs businesses to create their products. If those costs rise, prices might go up for everyone. However, if costs drop, inflation slows down, which might also lead to lower mortgage rates.

Q: How Does the Producer Price Index Affect Mortgage Rates?

A: When the Producer Price Index drops, it usually means lower inflation. That’s a good sign for mortgage rates, which often go down when inflation cools off. Lower PPI means a better chance of lower rates.

Q: Why is There a Drop in the Producer Price Index? Is That Good News for Homebuyers?

A: When the Producer Price Index drops, companies spend less to make their stuff, which helps keep inflation in check. This usually results in lower mortgage rates, making it easier for people to buy homes.

Q: What Happened to the Producer Price Index in 2025?

A: In July 2025, the Producer Price Index dropped by 0.2%, showing that inflation is slowing down. This gave a strong signal that mortgage rates might start going down soon.

Q: How Soon do Mortgage Rates Respond After the PPI Drops?

A: Mortgage rates don’t change instantly, but they often react within a few weeks of economic news like a PPI drop. If the trend continues, you may see lower rates in 2–6 weeks.

Q: Should I Wait for Lower Mortgage Rates or Lock Now?

A: If the Producer Price Index keeps falling, mortgage rates might keep going down. But it’s smart to talk to a loan officer and lock in a rate before they go back up.

Q: Can I Refinance My Mortgage if Rates Drop After a PPI Dip?

A: Yes! Refinancing could save you hundreds per month if your current mortgage rate is high and the Producer Price Index signals a rate drop. Gustan Cho Associates can help check if it’s worth it.

Q: What’s the Difference Between the PPI and CPI?

A: The PPI measures how much businesses pay to produce things. The CPI measures what consumers pay at stores. Both help track inflation and can influence mortgage rates.

Q: Will the Fed Cut Rates if the Producer Price Index Keeps Dropping?

A: If the Producer Price Index keeps falling and inflation cools, the Federal Reserve might pause or cut rate hikes. This usually leads to lower mortgage rates for borrowers.

Q: How Can Gustan Cho Associates Help Me with Falling PPI and Lower Rates?

A: Gustan Cho Associates watches the Producer Price Index and other market trends daily. We can help you lock a great rate, even if your credit score is low or you’ve had credit issues in the past.

This blog about “Producer Price Index Drop Signals Lower Mortgage Rates” was updated on July 23rd, 2025.