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This morning, three economic data points are pointing to stability in the economy.  However, while the data doesn't disprove an inflationary market, it's not showing enough of a slowdown to calm fears of it.

It's kind of like my backyard. 

I can't see the weeds, but I know that they're there.  I turn my back for just one weekend and -- thwapp! -- there they are.

The Producer Price Index registered a 0.3% increase, beating the expectations of a 0.2% rise.  Couple this with Industrial Production and Capacity Utilization effectively meeting estimates and you have a flat-to-higher inflationary reading on business.

In English, the data shows that businesses are producing more goods, under more strain, and with higher expenses.  But barely.  This worries mortgage markets because eventually businesses make a very important decision:

1. Should we absorb the higher costs and take them as a loss?
2. Should we pass on the higher costs to consumers?

Tomorrow, we may find out which path businesses are taking.

At 8:30 A.M. ET, the June Consumer Price Index will be released and that will help us understand if the higher costs are being passed on to consumers.  CPI is expected to increase 0.1%.

If CPI comes in higher than expected, it will be viewed as inflationary and inflation is the enemy of mortgage bonds.  Higher inflation means that mortgage rates will head higher, too.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.