The Labor Department reported this morning that surging costs for energy and food worldwide pushed the March inflation reading at the producer level up 1.1% -- and up 6.9% on a year-over-year level – its highest mark since the early 80’s. Core producer prices – a value that excludes the more volatile food and energy components – rose a more modest 0.2% -- but on a year-over-year basis it is up 2.7% -- well above the Fed’s stated “comfort” zone and its highest annualized mark in more than a decade.

Tomorrow’s headline Consumer Price Index is expected to post a month-over-month gain of 0.4% while the core rate (a value that excludes the more volatile food and energy components) is expected to be 0.2% higher for the month. March consumer inflation numbers that fall below the consensus forecast for both the gross and core consumer inflation rates will probably prove to be supportive of steady to fractionally lower mortgage interest rates. Actual values that match or exceed market expectations for both components of the March Consumer Price Index will likely put some upward pressure on note rates as investors sharply reduce their expectations for more mortgage market friendly rate cuts from the Fed this year.