More Signs of Rising Inflation

The inflation data released over the past week was concerning for mortgage rates. In addition, other major U.S. economic data exceeded expectations. Despite these results, mortgage rates ended the week just a little higher.

On February 19, the consumer price index showed a trend toward higher inflation. Friday’s release of the core personal consumption expenditures price index (core PCE), another highly regarded inflation measure, showed similar results. After holding steady around 1.3% for nearly all of 2015, core PCE in January was 1.7% higher than a year ago, which was the highest level since February 2013. Low levels of inflation have helped keep mortgage rates low. If the trend toward higher inflation continues, it will be negative for mortgage rates.

Two other major reports on January economic activity released over the past week showed the following increases: Durable orders jumped 5% in January, following a 5% decline in December. January existing home sales, which make up about 90% of all home sales, increased to near the best level in seven years. Existing home sales were 11% higher than a year ago.

Gross domestic product (GDP) is the broadest measure of economic activity. The second estimate of 2015 fourth-quarter GDP released on Friday showed growth during the quarter of 1%, higher than the consensus for growth of 0.4%. Economic activity is expected to gain steam going forward. The current consensus is that first-quarter GDP growth will rise to 2%.

Source: MBS Quoteline

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