The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.9% in the month of June and was much higher than the expected 0.5%. Year over year, the CPI increased by 5.4% which is the highest reading in around thirteen years. Core CPI, which strips out food and energy prices also increased and was also up by 0.9% for the month of June, just about doubling expectations. Year over year, core CPI increased to 4.5% from 3.8% which was the highest annual increase in almost 30 years!
The Producer Price Index (PPI), which measures inflation on the wholesale level, rose by 1% in the month of June. Year over year it rose by 7.3%, up from up from 6.6%. Core PPI, which like Core CPI, strips out food and energy prices, also rose by 1% in June, and by 5.6% year over year.
Like we have said in the past, inflation is very important to monitor, because as it increases, investors lose their appetite for bond purchases because it erodes their return on their investments. When less bond buying occurs, bond pricing drops since there is less demand. As a result, long term interest rates, like mortgage rates, then increase.
The bottom line is that you have to keep an eye on inflation and work with a trusted advisor who has an understanding of this and who can advise you of the best plan for your scenario.
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By: Jon Iacono