Price Pressure Ramping Up
- The Producer Price Index for Final Demand increased by 0.3 percent in June.
- Mortgage Applications increased by 2.5 percent for the week of July 6.
The Producer Price Index for Final Demand increased by 0.3 percent in June. The average monthly gain in the PPI for Final Demand was 0.22 percent in 2017. So far in 2018, the average monthly gain has been higher at 0.30 percent. The ramp up in producer price inflation is evident in the year-over-year comparison, now showing a 3.4 percent increase. Energy prices gained 0.8 percent in June, after a strong 4.6 percent increase in May. Food prices have recently been a counterweight to increasing energy prices. The Producer Price Index for Final Demand Foods was down by 1.1 percent in June, after a similar drop in April and little change in May. Excluding food, energy and trade, the core PPI for final demand also gained 0.3 percent in June, and was up 2.7 percent over the previous 12 months. Higher crude oil and petroleum product prices will keep the pressure on producer prices in July. Even though the rate of price increases has picked up in the headline PPI, it is such a broad measure that it masks what is happening to some key commodities. In June, the PPI for lumber was up 10.1 percent over the previous 12 months. The index for iron and steel was up 13.5 percent over the year.
Mortgage applications increased by 2.5 percent for the week ending July 6. Purchase apps were up by 6.5 percent after little change the week before. Refi apps fell by 3.8 percent, their third consecutive weekly decline. Based on a four-week moving average, purchase apps are up 2.6 percent from a year ago, while refi apps are down by 27.2 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage ticked down to 4.76 percent. Consumer conditions are strong but housing affordability is falling back to the long-term average as house prices and mortgage rates go up. Higher lumber prices will keep pressure on the price of new construction. We expect overall home sales to stay flattish this year, held down by existing home sales. New home sales look like they have more potential for gains given tight inventory conditions in most regional markets. Market Reaction: Trade news is dominating financial headlines. U.S. equity markets opened with losses. The yield on 10-Year Treasury bonds eased to 2.86 percent. NYMEX crude oil is down to $73.42/barrel. Natural gas futures are up to $2.78/mmbtu.
For a PDF version of this report, click here: June 2018 Producer Prices
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