March’s Consumer Producer Index showed headline inflation rising 0.9%, a strong reading driven largely by higher oil prices, but it came in right in line with expectations. On a year-over-year basis, inflation increased from 2.4% to 3.3%, with gasoline prices surging 21% following the closure of the Strait of Hormuz.

Core inflation, which excludes volatile food and energy prices, was more encouraging. It rose 0.2% for the month—slightly below estimates—and 2.6% annually, also coming in a bit lighter than expected.
Shelter costs continue to gradually moderate, increasing 0.27% in March and now running at 3% year over year. Rent rose just 0.19% for the month, which equates to about a 2.3% annual pace and is moving closer to real-time data trends, though there’s still some lag to work through.

Overall, the bond market, where mortgage rates come from, largely shrugged off the report. While headline inflation was elevated, it was delivered as expected, and the softer core reading helped keep bond reactions relatively muted. As bond prices increase, interest rates decrease and if we see oil drop in price and inflation soften, you will start to see mortgage rates follow suit.