Morning Report: Inflation at the wholesale level hits a record

Posted on November 9, 2021 by Brent Nyitray

Vital Statistics:

  Last Change
S&P futures 4,696 2.2
Oil (WTI) 82.22 0.33
10 year government bond yield   1.44%
30 year fixed rate mortgage   3.17%

Stocks are flattish this morning on no real news. Bonds and MBS are up small.

 

Inflation at the wholesale level rose 0.6% MOM and 8.6% YOY. Ex-food and energy, they rose 6.8% on a YOY basis. About a third of the increase was due to higher gasoline prices. The producer price index is upstream of the consumer price index, which means it will percolate down to the consumer level. While the history of the PPI doesn’t go back as far as the CPI, we are seeing record inflation.

 

Small business optimism slipped again, according to the NFIB Small Business Optimism Index. This is the lowest overall reading since March of this year. “The Optimism Index decreased slightly in October by 0.9 points to 98.2. One of the 10 Index components improved, seven declined, and two were unchanged. The NFIB Uncertainty Index decreased 7 points to 67. Owners expecting better business conditions over the next six months decreased 4 points to a net negative 37 percent. Owners have grown pessimistic about future economic conditions as this indicator has declined 17 points over the past three months to its lowest reading since November 2012.

You can see the increase in prices below, which corroborates the PPI:

 

Mortgage credit availability increased in October, according to the MBA. “Credit availability inched forward in October, but the overall index was 30 percent lower than February 2020 and close to the lowest supply of mortgage credit since 2014,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Within the subindexes, a 4 percent increase in the jumbo index was essentially offset by a 6 percent drop in the conforming index. There was an increase in the supply of jumbo ARM and non-QM products, which drove most of the increase in the jumbo index. On the conforming side, there was a pullback in ARMs, higher LTV loans, and lower credit score products.

 

Home prices rose 18% in September, according to CoreLogic. They see home price appreciation moderating to only 2% over the next year, however. The flight out of urban areas into the suburbs and exurbs continued, however CoreLogic sees that trend reversing over the next year.

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