Higher Wholesale Prices May Add More Fuel to Fed’s Inflation Fight

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What's Happening Today

Inflation was supposed to be coming down, but it might not be. A key inflation measure, the Producer Price Index (PPI), sped up more than expected last month, according to the latest data from the Labor Department. The PPI jumped 0.4% in September after falling 0.2% in August. That's also a faster rate than the 0.2% increase economists had forecasted. Since last year, wholesale inflation has risen 8.5%, down slightly from 8.7% in August as energy prices eased.

The PPI measures inflation on the wholesale level, meaning prices wholesalers sell to other producers or retailers. When raw material or supplier prices rise for businesses, they often raise their own prices, passing their increased costs on to consumers. That could mean regular shoppers like you and me are going to have to keep paying more for goods when we go to the store.

This isn't a great sign for tomorrow, when the Consumer Price Index (CPI) is released and shows how much inflation is hitting goods and services for the rest of us. If CPI shows that inflation isn't slowing down, it's likely that the Federal Reserve won't slow the pace of its aggressive rate hikes in its fight against inflation.

As the Fed raises rates, borrowing for consumers and businesses becomes more expensive. Already, mortgage rates are edging closer to 7%, according to the Mortgage Bankers Association, which said the average rate on a 30-year fixed-rate hit 6.81% in the latest week ended Oct. 7, its highest level since 2006.

- Kristin

Editors' Picks

Biden Downplays Risk of Major U.S. Recession Amid IMF Warning (The Washington Post)

That Sky-High I Bond Interest Rate Will Be Coming Down to Earth (The Wall Street Journal)

US Mortgage Rates Advance to Fresh 16-Year High of 6.81% (Bloomberg)

How Recessions Affect Housing Prices in the US (The Balance)

How Parents Are Coping With Inflation (The Balance)

IRA Limits on Contributions and Income (The Balance)

How To Choose the Right Long-Term Savings Account (The Balance)

Term of the Day

Home Equity

Home equity is the value of your interest in your home. It can increase over time if your property's value increases or as you pay down the mortgage loan balance.

Home equity starts with your home's current value. Now subtract the amounts owed on any mortgages or other liens you have against the property. These might be purchase loans that you used to buy the house, or second mortgages that were taken out later. The difference is your home equity.

You can get cash and use it to fund just about anything with a home equity loan, also known as a "second mortgage." That allows you to tap into your home equity while you're still living there. But your goal as a homeowner should be to build equity, so it might make sense to put borrowed money toward a long-term investment in your future rather than spending it.

Off the Charts

Higher mortgage rates are making monthly payments balloon, keeping many buyers out of the market, and putting downward pressure on prices. While the situation is very different in many ways from what came right before the Great Recession, experts still predict a drop in prices, albeit not quite as severe as what happened in the early 2000s.