Inflation Falls
- Mortgage Returns
- 2 days ago
- 2 min read
Overview: Like the Consumer Price Index (CPI) released last week, the latest major inflation data was lower than expected, which was positive for mortgage markets. However, this news was offset by increased concerns about larger budget deficits. As a result, mortgage rates ended the week with little change.
As lawmakers debate the next budget bill, investor concerns about the deficit have been growing. The U.S. currently has about $36 trillion in debt, and proposed tax cuts could add trillions over coming years. This week, the Moody’s rating agency cut the credit rating on the U.S. from the highest rating to the second highest due to the increasing burden of financing the government’s budget deficit. The other major rating agencies had already downgraded the U.S. to this level. The government must issue bonds to finance the deficit, and investors demand higher yields to purchase larger quantities of securities or lower-rated securities. In short, larger deficits are negative for mortgage rates.
A significant inflation indicator released this week came in much weaker than expected, which was good news for mortgage markets. The April core Producer Price Index (PPI) fell 0.4% from March, far below the consensus forecast for an increase of 0.3%. It was 3.1% higher than a year ago, down from an annual rate of 3.3% last month. Investors will be watching closely to see if higher tariffs lead to upward pressure on future inflation levels.
Propelled by a rush to beat potentially higher prices due to new tariffs, consumer spending in March jumped a massive 1.7% from February, the largest monthly increase since January 2023. Retail sales came back down to earth in April, however, rising just 0.1% from March, matching expectations. With the recent gains, sales were a substantial 5.2% higher than a year ago. Strength was seen in home improvement stores and restaurants, while sporting goods and department stores displayed weakness in April.
Retail Sales (% change)
Week Ahead
May 22
Existing-Home Sales report
May 23
New-Home Sales report
May 27
Consumer Confidence Index
May 30
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index
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