Rate Update for August 19,2008

Rates are unchanged again this morning.

Last Thursday the Labor Department issued the monthly Consumer Price Index (CPI) report which showed that prices at the consumer level in our economy grew at the fastest pace in 17 years. 

Today, the Labor Department released the monthly Producer Price Index (PPI) report which reports on prices at the wholesale/ manufacturing level of our economy.  The report indicated that prices increased by 1.2% in the month of July alone & 9.8% on a year-over year basis!  This marks the fastest growth in wholesale prices in over 20 years! 

This double shot of hit inflation news ordinarily would be terrible for mortgage rates but they have yet to move higher.  Why?

It may be because traders believe that much of the cause for the rapid increase in prices can be credited to higher oil prices in July.  Since oil prices have declined in August they may believe that the increases in July are temporary. 

Furthermore, stocks are not taking the inflation data well so we are also seeing a “flight to quality” in the financial markets.

Current Outlook: neutral

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