Morning Report: Inflation is the highest in 40 years

Vital Statistics:

S&P futures4,7149.2
Oil (WTI)82.11.23
10 year government bond yield 1.74%
30 year fixed rate mortgage 3.64%

Stocks are higher this morning on overseas strength. Bonds and MBS are flat.

Inflation at the consumer level hit the highest since the song 876-5309 topped the charts in 1982. The headline consumer price index rose 0.5% MOM and 7.0% YOY. Ex-food and energy prices were up 0.6% MOM and 5.5% YOY. Shelter and used cars were big drivers (pardon the pun) of the increase. The torrid home price appreciation of last year will start to filter into the numbers this year, as it takes about 12-18 months for it to show up into owners’ equivalent rent. Suffice it to say, elevated CPI numbers are going to be with us for a while, even if we see some relief in food and energy prices.

Mortgage applications rose 1.4% last week as purchases rose 2% and refis rose 0.1%. “Mortgage rates increased significantly across all loan types last week as the Federal Reserve’s signaling of tighter policy ahead pushed U.S. Treasury yields higher,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Rates at these levels are quickly closing the door on refinance opportunities for many borrowers. Although refinance activity changed little over the week, applications remained at their lowest level in over a month, and conventional refinance applications were at their lowest level since January 2020.”

Purchase activity should perk up soon as the spring selling season is just around the corner.

In his testimony in front of the Senate yesterday, Jerome Powell said that the economy no longer needed “aggressive stimulus” and went further to say that high inflation is a “severe threat” to the economy. “It is really time for us to begin to move away from those emergency pandemic settings to a more normal level,” Mr. Powell said. “It’s a long road to normal from where we are.”

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