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The Producer Price Index for Final Demand increased by just 0.1 percent in August as energy prices fell.

August 2019 Producer Prices, September Mortgage Apps

September 11, 2019
By Robert A. Dye, Ph.D., Daniel Sanabria

Cool Inflation Greenlights Fed Rate Cut

*     The Producer Price Index for Final Demand increased by 0.1 percent in August.
*     Mortgage Applications for Purchase increased by 4.5 percent for the week ending September 6.

The Producer Price Index for Final Demand increased by just 0.1 percent in August as energy prices fell. The energy price index was down by 2.5 percent for the month, after gaining 2.3 percent in July. The wholesale food price index was unchanged in August. Wholesale trade margins increased, pushing the trade index up by 0.2 percent. Core PPI (less food, energy and trade) was a little hotter, increasing by 0.4 percent for the month. Over the 12 months ending in August, headline PPI was up by 1.8 percent, while core PPI was up by 1.9 percent. Cooling global demand, particularly in the manufacturing sector, is expected to keep upstream price pressure in check in the months ahead. We expect that tame inflation readings will be part of the rationale for a 25 basis point cut to the fed funds rate range on September 18.

The Mortgage Bankers Association's composite mortgage application index increased by 2.0 percent for the week ending September 6, halting a three-week slide. Purchase apps were up by 4.5 percent, their second consecutive weekly increase. Refi apps were up slightly, by 0.4 percent after falling for the previous two weeks. On a four-week moving-average basis, purchase apps were up by 5.1 percent from a year earlier. Refi apps were up by 167.2 percent over the year. According to the MBA, the rate for a 30-year fixed-rate mortgage eased to 3.82 percent. We expect lower mortgage rates to continue to support opportunistic home buying and refis. However, we do not expect to see a breakout for range-bound home sales.

Market Reaction: Equity markets opened with gains. The yield on 10-Year Treasury bonds is up to 1.73 percent. NYMEX crude oil is up to $57.54/barrel. Natural gas futures are down to $2.57/mmbtu.

For a PDF version of this publication, please click here: August 2019 Producer Prices, September Mortgage Apps

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