CPI increasing, is it good or bad?

By
Mortgage and Lending with Clarion Mortgage Capital, Inc.

 Today is Wednesday, the 20th of February 2008, and there are several economic events due, nevertheless I will focus on the ones that (according to my personal opinion) have greater influence on mortgage rates.

First of all, last month's Consumer Price Index (CPI) was higher than expected with the overall rate of 0.4%, and the Core rate amassing up to 0.3% (excluding the increase in prices of food and energy) being the biggest monthly increase since June, 2006.

If we analyze the annual CPI numbers, we'll see that 2.5 % is  considerably above the Fed's level of tolerance. Many experts were 'right on the money' when they predicted that inflation was going to be one of the Federal Reserve Commetee's biggest concerns for 2008.

Second, the minutes of the two-day meeting that concluded on Jan. 30 are now available. On their statement,  "The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully," the Fed said. While Fed policymakers are still discussing what further steps might be needed due to growing risks to the U.S. economy, the markets are trying to find hints that will indicate if more fed rate cuts are on the way.

I will stop right here, because I just got a notification that mortgage bonds finished the day on another wild roller coaster ride by first plunging -34bp lower on a CPI report showing higher than forecast consumer inflation and then reversing course and soar 97bp higher intraday for a net change of +56bp in reaction to negative economic and credit crunch data.

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