Inflation fears kicked in last week, driving long-term mortgage rates up significantly. While the core reading of the Consumer Price Index came in at expectations, the headline number rose a stout 0.6%. Additionally, retail sales bounced up 1.0%, almost twice the rate of increase that had been anticipated. While the increase in retail sales certainly bodes well for the economy as a whole, it does increase the likelihood that prices in the economy will see more upward pressure. With inflation already running at the higher end of most economists' comfort range, anything that pushes inflationary pressures higher will likely result in higher mortgage rates, especially longer-term notes.
Next week, the Producer Price Index is due. If we see another higher-than-expected reading in either the headline or core numbers, we'll certainly see mortgage rates continuing to climb. If the readings come in lower-than-expected, we may see mortgage rates back off just a little bit. However, if Industrial Production readings spike, we'll see rates continuing to trend upward for a while.
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