Inflation Concerns Ease

There was little net change in mortgage rates over the past week. Mixed economic data provided no reason for mortgage rates to move much in one direction or the other.

Important inflation data was released during the week. After holding pretty steady for most of 2015, core inflation has been rising over the last few months. Core inflation excludes the volatile food and energy components, providing a clearer indication of the underlying trend. The release of the February core PCE price index received much attention, especially following the big increase in inflation seen in February as measured by the core consumer price index (CPI). The core PCE price index, which measures inflation a little differently than core CPI, showed that inflation held steady in February, easing investor concerns somewhat. Fed officials have stated that they prefer core PCE as its measure of inflation. Investors will be closely watching both reports in coming months to see if there is a need to raise yield requirements to offset the effects of rising prices.

In a similar fashion, Monday’s housing data helped reduce investor concerns about weakening home sales. In February, existing home sales were disappointing compared to expectations. Monday’s pending home sales report contained a nice upside surprise, however, rising to the best level in seven months. While the existing home sales data measures closings, the pending home sales report measures contracts signed to buy previously owned homes. Its increase is a good indication that there will be improved closings in the coming months.

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