Inflation Absent from Headline Price Indexes
* The Producer Price Index for Final Demand declined by 0.1 percent in August.
* Mortgage Applications decreased by 1.8 percent for the week of September 7.
The Producer Price Index for Final Demand declined by 0.1 percent in August, indicating no surge in overall inflation despite tight labor market conditions and also despite new import tariffs. However, over the 12-month period ending in August, the PPI for Final Demand was up by 2.8 percent, due to stronger monthly gains last fall and early this year. Those gains were pushed primarily by increasing crude oil prices. The 12-month gain in PPI is down from a high of 3.4 percent this past June. We expect the year-over-year gains in the headline PPI to continue to ease this fall. In August, the energy price sub-index for final demand goods increased by 0.4 percent, after falling by 0.5 percent in July. We still look for tighter global oil markets next year, supporting small price gains, but we do not expect that oil will push on inflation indicators in 2019 to the extent that it has in 2018. Food prices eased by 0.6 percent in August. Wholesalers’ and retailers’ margins eased in August, so the trade component of headline PPI also eased for the month, down 0.9 percent. Core PPI (defined as final demand less foods, energy and trade) was up just 0.1 percent in August and was up by 2.9 percent over the previous 12 months.
Total mortgage applications fell by 1.8 percent for the week of September, with a sharp drop in refinancing activity. Refi apps fell by 5.9 percent in early September, after two previous weekly declines. On a four-week moving average basis, refi apps are down almost 38 percent from a year earlier, consistent with the rising interest rate environment. Mortgage applications for purchase increased by 0.9 percent in early September, the second straight weekly increase. Compared to a year ago, purchase apps are down 0.7 percent, consistent with flat-to-slumping home sales. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.
Market Reaction: Equity markets opened with losses but have reversed. The yield on 10-Year Treasury bonds is down to 2.96 percent. NYMEX crude oil is up to $70.97/barrel. Natural gas futures are down to $2.82/mmbtu.
For a PDF version of this report, click here: August 2018 Producer Prices and Mortgage Apps
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