Falling even deeper in the hole

Tuesday, November 18, 2008

This morning's outsized drop in the October Producer Price Index did nothing more than add one more reason for mortgage investors to push inflation fears to the bottom of the stack of near-term concerns.

U.S. Producer Prices fell a record 2.8% in October as energy prices plummeted while the core producer price index, a value that excludes the more volatile food and energy prices, moved surprisingly higher. Core producer prices rose by 0.4% versus expectations for a gain of 0.1%, and were up 4.4% over the last 12 months, the steepest increase since 1989. Analysts seem to be relatively unconcerned about the "hotter" than anticipated pace of core price inflation at the farm and factory gate. The general thought is that the core index is simply reflecting the pass-through effect of higher energy prices earlier in the year -- but the upward price pressure will likely fade rapidly since energy and commodity costs have fallen off of a cliff since mid-year.

Next up is tomorrow's 8:30 a.m. ET release of the October Consumer Price Index figures. Mortgage investors don't anticipate any significant mortgage market unfriendly data to be contained in this data series.

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