Week Of: March 17th, 2025

03-14-25 10:41am The major inflation data released this week was weaker than expected. There was surprisingly little reaction in mortgage markets, however, and rates ended the week nearly unchanged.

The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy. In February, Core CPI was 3.1% higher than a year ago, below the consensus forecast and the lowest annual rate since April 2021.

Although this annual rate is down significantly from a peak of 6.6% in September 2022, and from 3.9% in January of last year, it is still far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Shelter (housing) costs continue to be a primary reason why further progress on bringing down inflation remains challenging. In addition, used car prices, apparel, and auto insurance posted large increases in February, while airline fares dropped sharply.

Another significant inflation indicator released this week, which measures costs for producers, also came in well below the expected levels. The February core Producer Price Index (PPI) fell 0.1% from January, far below the consensus forecast for an increase of 0.3%. It was 3.4% higher than a year ago, down from an annual rate of 3.6% last month. Of the two major inflation reports, investors tend to place less weight on PPI, since it reflects a smaller slice of the economy than CPI.

The lower rates seen in recent weeks helped boost mortgage applications. According to the latest data from the Mortgage Bankers Association (MBA), applications to refinance jumped 16% from last week and were a massive 90% higher than one year ago. Purchase applications rose 7% from the prior week and were up a little from last year at this time.

Investors will continue to watch for additional information about tariff policies. The next Fed meeting will take place on Wednesday. No change in the federal funds rate is expected, and investors will be looking for additional guidance on future monetary policy decisions. For economic reports, Retail Sales will be released on Monday. 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. Housing Starts will come out on Tuesday and Existing Home Sales on Thursday.

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There were also a couple of significant economic events in Europe this week. On Thursday, the European Central Bank reduced benchmark interest rates by 25 basis points. This move was widely anticipated, and the reaction was relatively minor. A much bigger surprise, however, was a policy change in Germany. The German government announced plans to adjust its debt rules to allow higher fiscal spending to boost economic growth. Global bond yields climbed after this potentially inflationary news.

Investors will continue to look for additional information about tariff policies. For economic reports, the main event will be CPI on Wednesday. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. The Producer Price Index (PPI), another monthly inflation indicator, will be released on Thursday.

Copyright @ 2025 MBSQuoteline