Producer Price Index Drop Signals Lower Mortgage Rates


This ARTICLE On the Producer Price Index Drop Signals Lower Mortgage Rates Was PUBLISHED On October 12th, 2019

Producer Price Index
Gustan Cho Associates

BREAKING NEWS On The Producer Price Index Drop Signals Lower Mortgage Rates In The Coming Months:

  • After news that producer price index unexpectedly rose in August 2019, breaking news hit the wire in September 2019 that the producer price index (PPI) dropped 0.3% in September
  • The U.S. Producer Prices rise in August surprised the market
  • Producer Prices rebounded in August
  • However, September numbers came up and the Producer Price Index dropped 0.30%
  • This means that the costs of production are lower for producers and signals low inflation
  • August’s data of the PPI rebounding signaled the Feds would not cut rates
  • However, with the lower September numbers, experts predict future interest rate cuts which mean lower mortgage rates for homeowners and homebuyers seeking a mortgage

In this article, we will cover and discuss the Producer Price Index Drop Signals Lower Mortgage Rates.

What Is The Producer Price Index (PPI)

What Is The Product Price Index (PPI)

The Producer Price Index is a measure economists use to gauge the level of inflation. A low PPI number means the cost of producing goods is low which means that the inflation levels and chances of inflation are low. If the PPI remains high, it means that the risk of inflation is high. Low PPI numbers is great that mortgage rates will remain the same and/or lower. A higher PPI number means that mortgage rates may be on the rise due to fears of inflation.

Massimo Ressa, the CEO of Gustan Cho Associates and an economic market expert said the following:

The Labor Department said its producer price index for final demand edged up 0.1% last month as a jump in the cost of services offset the largest drop in the price of goods in seven months. U.S. producer prices unexpectedly rose in August and underlying producer prices rebounded, but that data will not change financial market expectations that the Federal Reserve will cut interest rates again next week to support a slowing economy. The Labor Department said its producer price index for final demand edged up 0.1% last month as a jump in the cost of services offset the largest drop in the price of goods in seven months. That followed a 0.2% gain in July. In the 12 months through August the PPI advanced 1.8% after increasing 1.7% in July. Economists polled by Reuters had forecast the PPI would be unchanged in August and rise 1.7% on a year-on-year basis. Excluding the volatile food, energy and trade services components, producer prices jumped 0.4% last month after dipping 0.1% in July, the first decline since October 2015. The so-called core PPI climbed 1.9% in the 12 months through August after increasing 1.7% in July. The Fed, which has a 2% annual inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.6% on a year-on-year basis in July and has undershot its target this year. Financial markets have fully priced in a rate cut at the U.S. central bank’s Sept. 17-18 policy meeting against the backdrop of simmering trade tensions between the United States and China that have soured business confidence and tipped both U.S. and global manufacturing into recession.

U.S Tariffs

What are U.S Tariffs

The Trump administration seems to have worked out imposing the next round of tariffs in the next period.

  • This sent stocks soaring on Friday, October 12th, 2019
  • Many fear the economy will tank if President Trump imposes tariffs on various consumer goods
  • Others have fears that the downturn in manufacturing will have a negative impact on the broader economy and slow the longest-lasting economic rally which has lasted over 11 years
  • The economy remains strong with the highest consumer spending in many years and a strong growing labor force

Due to fears of inflation and another recession, the Federal Reserve Board cut rates for the first time since the 2008 Great Recession.

What Experts Say

What Experts Say

Mike Gracz, the National Sales Manager at Gustan Cho Associates said the following:

In August, wholesale energy prices fell 2.5% after rebounding 2.3% in the prior month. They were weighed down by a 6.6% drop in gasoline prices, which followed a 5.2% percent jump in July. Goods prices declined 0.5% last month, the most since January, after rising 0.4% in July. Energy prices accounted for more than 80% of the drop in the cost of goods in August. Wholesale food prices fell 0.6% in August after gaining 0.2% in the prior month. Core goods prices were unchanged last month. They edged up 0.1% in July. The cost of services increased 0.3% after decreasing 0.1% in July. Services were boosted by a 6.4% surge in the cost of guestroom accommodation, the largest gain since April 2009. The cost of health-care services rose 0.2% after edging up 0.1% in July. Those healthcare costs feed into the core PCE price index.

Both the PPI and CPI are gauges to predict the economy, inflation, and a potential recession. With mortgage rates, bad economic news means lower mortgage rates. In general, when the Feds cut rates mean lower mortgage rates. If the stock market plunges, it normally means lower mortgage rates. This is a developing story on Gustan Cho Associates Mortgage News. We will keep our viewers updated as more develops.

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