Rates Rise On Business Inflation: +.8% Since December, +3.6% Since Jan 2010.

Rates are up today as inflation week rolls on. This morning’s reading of January producer prices shows a .8% increase since December and a 3.6% increase since January 2010. Stripping out volatile food and energy prices, the “core” readings showed a greater-than-expected .5% increase since December and a 1.6% increase since last year.

The yearly trend is consistent with last month, and rates rose today just like they did last month. Part of the reason for the rate rise is also that monthly inflation looks hot even if you do strip out food and energy. Bonds don’t like inflation because it erodes buying power of future income paid to bondholders. So mortgage bonds sell on inflation data like this, and rates rise. They’re up about .125% this morning.