Happy Friday, Brian Manning here with the weekly update. Let’s see. Monday this week, we had a quiet news day, not much to talk about there. Tuesday this week, we got PPI, that’s the Producer Price Index, the PPI measures inflation on the wholesale level. So the core rate, the core rate strips out volatile items such as food and energy. For the month of October, the core rate was up 4/10%. On a year over year basis, inflation on a wholesale level was at 8.6%. So a really hot number there. On Wednesday this week, we got CPI. CPI stands for the consumer price index, we really think that it’s the more accurate way to look at the gauge of inflation because CPI does take items into account such as out of pocket medical expenses, and cost of living. The Federal Reserve’s favorite gauge for inflation is what’s called the PCE, that’s the personal consumption expenditure. We don’t really agree with that one as much because the PCE does not take into account medical cost or cost of living.
So Wednesday we got CPI, and the core rate for CPI for the month of October, again, core rate stripping out volatile items such as food, energy, was up 6/10% of a percent. On a year over year basis, the headline numbers, so this is kind of everything all in was up 6.2%, one of the hottest numbers ever on record. And the core rate was up 4.6%. Ad what’s interesting is that a component of this is used cars. Used cars were up 2.6% on a month over month basis, and 26.4% on a year over year basis. That means probably if you have a used car, you could sell it at a profit, which is kind of ridiculous to see. Well, finally the bond markets freaked out over this information. We’ve been wondering when this is going to happen. But probably when they saw a six printed in the numbers for headline inflation. That’s a pretty ridiculous number that we’re really not seeing anything done to combat so the Federal Reserve can do one of two things to combat inflation, one of the really main things is to raise rates. And I mean, there’s been talk about them doing in this upcoming year, but they haven’t done anything. So inflation really is going to be the enemy of interest rates. The reason why is because inflation erodes the value of a mortgage. If you think about this, you get a mortgage, 30 year fixed or whatever 3%. And that’s your guaranteed rate of return on your money for the next 30 years. And all the costs are going up and you’re getting, you know, inflation of 4% and 5%. The higher inflation is going up, it’s eroding that a fixed rate of return that you have in the mortgage.
So when the Federal Reserve is not going to do anything right now for raising rates, what you’re going to see is bond markets reacting, and they’re going to force rates to go higher across the board. So what I want to show you here is just the yield on the 10 year treasury we’ve looked at this before, and mortgage rates will really follow suit with what’s going on here. So on Wednesday of this week, when we got the CPI report, you see this giant green candlestick right here, this one day alone, right here Wednesday off the CPI and the bond market reaction means that this moved interest rates like an eighth to a quarter percent higher. So definitely we’re seeing the impact of inflation hitting mortgage rates, we’re going to continue to see this. I mean, rates are still incredibly low. We’re still locking in people at amazing interest rates, but still that one day moved rates by an eighth or a quarter percent. So we’ll have to wait and see what happens. But if we continue to get inflationary pressure like this, and we continue to not have the Federal Reserve raise rates for us, then we’re going to continue see some slight increases in mortgage rates in the markets.
I’m around all weekend. If you have any questions, let me know. I’d love to help you. If you want to get pre approved, want to go through a buyer strategic consultation, give me a call on my cell phone, text me. Happy Friday. Have a great day.