Week Of: 06/15/2026

 06-12-26 10:45am Mortgage markets remained highly sensitive to movements in energy prices this week. While the latest inflation reports reflected the impact of rising oil costs, investors largely anticipated the increase, and the reaction was minor. Mortgage rates ended the week slightly lower.

The Consumer Price Index (CPI), one of the most closely watched inflation indicators, showed that prices rose 0.5% in May from the previous month, matching expectations. CPI was 4.2% higher than a year ago, up substantially from an annual rate of 3.8% last month to the highest level since April 2023. Of note, the annual increase in average hourly earnings in May was 3.4%, meaning that wage gains are no longer keeping pace with inflation.

To reduce short-term volatility and get a clearer picture of underlying inflation trends, investors look at core CPI, which excludes food and energy. In May, Core CPI was 2.9% higher than a year ago, up from 2.8% last month and the highest level since September 2025. Shelter (housing) costs were up 3.4% on an annual basis and continue to be a primary reason why bringing inflation down to the 2% target of the Fed remains challenging.

A different inflation report released this week, which measures wholesale costs for producers, also reflected the rise in energy prices. The May Producer Price Index (PPI) rose a massive 1.1% from April, far above the consensus forecast for an increase of 0.7%. A record monthly surge of 2.8% in the price of goods, which are mostly products related to energy, accounted for roughly 80% of the rise in the index. PPI was 6.5% higher than a year ago, up sharply from an annual rate of 5.7% the prior month and the highest level since November 2022. Its impact was relatively minor, however, as investors tend to place a lot more weight each month on the Consumer Price Index report, which better reflects overall inflation levels in the economy.

On Thursday, the European Central Bank (ECB) raised its benchmark interest rate by the anticipated 25 basis points to 2.25%, marking its first rate hike since 2023. Policymakers cited rising energy costs and their potential impact on food, goods, and services prices. The ECB also acknowledged increased uncertainty stemming from ongoing geopolitical tensions in the Middle East, which could create additional inflation pressures while weighing on economic growth. Investors currently expect further rate increases from the ECB in the coming months.

Looking ahead, attention will remain fixed on the conflict in the Middle East. In addition, the next Fed meeting will take place on Wednesday. No change in rates is expected, and investors will be closely analyzing the commentary for clues regarding future policy adjustments. For economic data, Housing Starts and Import Prices will come out on Tuesday. Retail Sales will be released on Wednesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Mortgage markets will be closed on Friday for Juneteenth.

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