There are numerous economic indicators which are watched by investors in bonds and mortgage-backed securities (MBS). One of the more important ones is the producer price index (PPI) because it is the first inflation report to be released each month.
The PPI is a measure of prices at the producer level. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher-priced goods. However, the PPI is only a measure of goods, while the consumer price index (CPI) measures goods and services. It is possible for the prices of goods to remain stable while the prices of services increase.
While MBS investors typically are able to gain an initial indication of inflationary pressures from the PPI data, the CPI data are considered a more accurate indicator of inflation due to the cost-of-services component. Nevertheless, a PPI release indicating increasing goods prices may cause mortgage rates to push higher, while a falling PPI may cause a drop in mortgage rates.
For a free consultation to discuss which type of mortgage loan will work best for you, call Victoria Spannaus at Wachovia Mortgage Corp. at (800) 741-7813 or 910-692-6225.
Look for my weekly article in the Sandhills Real Estate section of the Pilot.
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