CPI Drops. PPI Expected to Follow. Mortgage Rates Drop.

We got the inflation news the market was looking for.

July CPI came in at 3.4% year over year, down from 3.5%, while core CPI held at 2.5% year over year. Both were essentially in line with expectations.

And the bond market liked it. The 10-Year Treasury moved lower, giving mortgage-backed securities a boost and providing some immediate relief for mortgage rates.

Now all eyes turn to tomorrow’s PPI report. Another softer inflation reading would add to the story we’ve been building: inflation is cooling while the labor market is weakening.

Put those two pieces together with last week’s disappointing jobs report and the significant downward revisions to May and June payrolls, and the argument for the Fed to keep raising rates becomes harder to make.

CPI is cooperating. Jobs are weakening. If PPI confirms the trend tomorrow, we could see another leg lower in rates.

Time to get ready for the housing market to heat up this fall.

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