Does the CPI Need a Reality Check?

by Florida's #1 Mortgage Planner on March 14, 2008

This morning’s CPI (Consumer Price Index) data, one gauge on inflation, came in much lower than expectations which surprised the heck out of everyone, probably even those making the report.  But is reality different than what the numbers present?

That’s a good question, and one that may not be answered in “data” for a while, but we can see it already in the size of our wallets and bank accounts.  Traders are rallying the mortgage bonds (will send mortgage rates lower) on the heels of this morning’s data, even though they can see oil is trading around $110 and they fill up their car with $3.50/gallon gas on the way home. 

Make sense?  Hardly.  Since when does reality make it into the markets these days?

Here’s how Market Watch reported the news this morning:

Led by a quirky decline in energy costs, U.S. consumer inflation moderated in February, opening the door for the Federal Reserve to keep cutting interest rates to support flagging economic growth.

My comment:  And oil and food are the same prices still, right?

As a result, last month’s improvement in prices may be short-lived.

My Comment:  Probably the biggest understatement in years.  I do hope I am wrong though.

Unfortunately, this data, as MarketWatch mentioned, opens the door to further rate cuts.  It is good news for those who have loans, credit cards, etc. that are tied to the Fed Funds Rate or the Prime Rate, but is not very good news for those seeking mortgages down the road, per se.

Mortgage bonds are reacting positively to today’s news, so mortgage rates could tick down a bit today, if they can hold their ground.

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