Producer Prices Cool But a Rate Hike Is Likely Unavoidable - Producer prices decreased in August, thanks to falling energy prices.

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Hiranmayi Srinivasan, Associate Editor

What's Happening Today

The Producer Price Index (PPI), which measures wholesale inflation from the perspective of producers, decreased 0.1% in August, according to data released by the Labor Department this morning. This is encouraging after yesterday's Consumer Price Index data (which shows how much more we will pay for goods in stores), showed that inflation is still making things like food and housing more expensive. The PPI is worth paying attention to, because when costs rise for producers, it usually means prices will change for consumers like us.

The PPI dropped for a second month in a row, a first since the start of the pandemic, with the decline largely driven by easing energy prices. Excluding food and energy costs, prices rose 0.2%. So while today's report offers some good news about inflation, yesterday's consumer inflation figures show that higher prices on many essentials like groceries are still burning a hole in our wallets.

But even with higher prices, Americans seem to be feeling better about the state of their personal finances. Research company Morning Consult's Index of Consumer Sentiment showed that U.S. consumer confidence jumped 5.5% in August—the biggest increase since March 2021. The report showed an increase in consumer confidence in 44 out of 50 states, largely driven by falling gas prices.

Meanwhile, taking out a mortgage got more expensive as the average rate on a 30-year fixed-rate loan broke 6% for the first time since 2008, according to the latest data from the Mortgage Bankers Association (MBA). As higher mortgage rates continue to push potential homebuyers out of the market, mortgage applications declined 1.2% from a week earlier, and mortgage refinancing activity (which is sensitive to changing rates) is down more than 80% compared to the same period last year.

A worse than expected retail inflation number dragged stock markets down yesterday, and also set the stage for what's to come next. With inflation still soaring, economists are predicting the Federal Reserve will try to fight it with a super-sized rate hike next week. While it was the shock of the August inflation data that rattled markets, volatility may likely come down as the market sentiment begins to factor the Fed's next move.

- Hira

Editors' Picks

The Biggest Fed Rate Hike in 40 Years? It Could Be Coming Next Week. (MarketWatch)

How the Federal Reserve Controls Inflation (The Balance)

As Gasoline Prices Drop, Electricity and Some Heating Costs Rise (The Wall Street Journal)

Pandemic Aid Cut Child Poverty by More Than Half (The Balance)

How To Budget and Save When You're Single (The Balance)

Tips for Saving for Retirement in Your 20s (The Balance)

Be Prepared for Closing Costs When You Buy a Home (The Balance)

Term of the Day

HELOC

Sometimes you might have financing needs that can't be handled with a credit card—debt consolidation, home improvements, medical expenses, or education expenses, to name a few. You can tap into your home's equity as a source of funds for those more significant expenses. Because the line of credit is secured by the money you've paid into your home mortgage, you can often borrow larger amounts.

With a HELOC, the lender establishes a maximum credit line from which you can borrow as long as you have available credit and you're still in the draw period. The draw period is a timeframe that some lenders set for making purchases against your line of credit. During the draw period, you may be required to pay only the interest or a minimum payment of interest and principal.

HELOCs often have lower interest rates than other types of loans, allowing you to minimize your financing costs. However, the APR may be variable, which means it can fluctuate from month to month based on an underlying market rate.

Off the Charts

When the pandemic hit in 2020, large parts of the economy shut down and millions of people lost their jobs, but, paradoxically, poverty plummeted for the next two years. In fact, by one measure, both the overall and child poverty rates dropped to all-time lows in 2021, according to data released by the Census Bureau this week.