Inflation can have a big impact on the Bond markets, and also on home loan rates, which are tied to Mortgage Bonds. Here’s what you need to know.
What is the Consumer Price Index (CPI) report? The CPI averages price changes on a predetermined basket of goods including transportation, rent, food, energy and medical care. The report is used to assess price changes associated with the cost of living.
What’s happened recently? Economic data showed that June Core CPI, which strips out more volatile food and energy prices, rose by 2.3 percent year-over-year, which is the hottest year-over-year rate since the start of the financial crisis back in 2008.
What’s the bottom line? While inflation has not been an issue in nearly a decade, should it finally come to roost, home loan rates could go higher despite other Bond-friendly factors like the Brexit uncertainty and global economic weakness. This is because inflation reduces the value of fixed investments like Bonds, and home loan rates are tied to Mortgage Bonds.
I’ll continue to monitor inflation reports closely, but if you have any immediate questions, please call or email today.