While wholesale inflation rose in November, the annual inflation reading from the Producer Price Index (PPI) decreased to 7.4%. Similarly, our preferred measure of wholesale inflation, Core PPI, was higher than expected in November but reported an annual decline.
Although last month's wholesale inflation readings were higher than anticipated, we can take some comfort in the fact that the annual readings are moving in the right direction. Consumer inflation for November was reported yesterday and it showed similar progress.
If you missed it in previous market updates, you may be asking yourself why we keep reporting on inflation and the Fed. Inflation is the enemy of mortgage bonds and other fixed investments. When inflation rises, investors will demand a higher rate of return to compensate for the erosion of their investments due to inflation. This causes interest rates to rise.
As you might recall from last week, CoreLogic's Home Price Index from last week showed a decline in home prices for October, with cities and higher-priced homes accounting for a majority of the decline. CoreLogic is forecasting that we will see a 4.1% increase in the year moving forward.
So what does a 4% increase in home price mean for a homeowner? If someone buys a house for $400,000, a 4% annual increase would provide them with $16,000 in equity in addition to their down payment and any principal payments they've made over the course of the year.
The highlights in the economic calendar for this week will come from yesterday and today. Consumer inflation for November was released yesterday. In addition, the Fed’s two-day meeting began yesterday and it'll wrap up this afternoon with the Monetary Policy and press conference. We can expect another hike in the benchmark Fed Funds Rate to help cool inflation. We'll be breaking down both of these in next week's update. Stay tuned!