Weak Inflation, Steady Rates
The major inflation data released last week was weaker than expected. There was surprisingly little reaction in mortgage markets, however, and rates ended last week nearly unchanged.
Core CPI at 3-Year Low
The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy. In February, Core CPI was 3.1% higher than a year ago, below the consensus forecast and the lowest annual rate since April 2021.
Inflation Still Above Target
Although this annual rate is down significantly from a peak of 6.6% in September 2022, and from 3.9% in January of last year, it is still far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Shelter (housing) costs continue to be a primary reason why further progress on bringing down inflation remains challenging. In addition, used car prices, apparel, and auto insurance posted large increases in February, while airline fares dropped sharply.
Producer Prices Decline
Another significant inflation indicator released last week, which measures costs for producers, also came in well below the expected levels. The February core Producer Price Index (PPI) fell 0.1% from January, far below the consensus forecast for an increase of 0.3%. It was 3.4% higher than a year ago, down from an annual rate of 3.6% last month. Of the two major inflation reports, investors tend to place less weight on PPI, since it reflects a smaller slice of the economy than CPI.
Mortgage Applications Surge
The lower rates seen in recent weeks helped boost mortgage applications. According to the latest data from the Mortgage Bankers Association (MBA), applications to refinance jumped 16% from last week and were a massive 90% higher than one year ago. Purchase applications rose 7% from the prior week and were up a little from last year at this time.
Mortgage Rates for the week of 3-17-2025