Inflation: Front and Center, Pressuring Rates

by Alex Stenback on July 17, 2008

Cpi_june08 Mortgage rates have jumped roughly a .25% over the past two days after the Consumer Price Index showed a 17 year high in prices.  From the WSJ:

The consumer-price index rose 1.1% in June, the biggest monthly spike since September 2005, following the chaos of Hurricane Katrina. Prices last month were 5% higher than a year before, the Labor Department said, the biggest rise since 1991. "Core" prices, which exclude food and energy, rose 0.3% in June, faster than in the previous two months.

If you are hoping for lower mortgage rates, this ongoing inflationary trend is not a good one – as we regularly point out around here, inflation will push mortgage rates higher, sure as watering will make the grass grow.

But, as the old adage tells it, the best cure for high prices is high prices:  When prices stay rise, demand falls.  When demand falls, prices are sure to follow.  Round and round we go.

A funny world this is, when homeowners and prospective homeowners are caught hoping the economy gets worse so that mortgage rates will improve.

{ 1 comment… read it below or add one }

cklimen July 17, 2008 at 1:33 pm

It sound and looks like a bad situation to me: inflation going up, home prices in the tank, interest rates increasing, people are EXTREMELY freaked out about increasing gas and food prices, dollar value is headed south. Something’s got to give here, and soon, before our economy goes super nova.

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