Higher Inflation 

Mortgage rates spiked higher late last week, as investors bought stocks and sold bonds. The volatility continued this week, but the net effect was favorable for mortgage rates. Despite an upside surprise in the CPI inflation data and stock market gains, mortgage rates ended the week a little lower. 

The Consumer Price Index (CPI) is the most widely followed monthly inflation indicator, and the readings for January were higher than expected. CPI was 1.4% higher than a year ago, which was the highest level since October 2014. 

While some forces have helped hold down inflation over the past year, including the stronger dollar and lower oil prices, the service sector has remained strong and costs have been rising. In particular, shelter and medical costs have increased over the past year. Mortgage rates are highly influenced by the outlook for future inflation. If the trend toward higher inflation accelerates, it would be negative for mortgage rates. 

Looking ahead, Existing Home Sales will be released on Tuesday and New Home Sales on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. The Core PCE price index, the Fed's preferred inflation indicator, and the second estimate of fourth quarter GDP will be released on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.