WHAT TO WATCH: CONSUMER PRICE INDEX

Inflation at the consumer level has the potential to negatively impact Bonds and home loan rates if it begins to rise. Here’s a breakdown of what you need to know and watch in the coming months.

What To WatchWhat is the Consumer Price Index?
The Consumer Price Index (CPI) measures the average price level paid by consumers for a representative basket of goods and services. It reports price changes in over 200 categories. The CPI also includes various user fees and taxes directly associated with the prices of specific goods and services.

What’s happened recently?
CPI for December showed there is not much inflation pressure at the consumer level. That said, the Producer Price Index, which measures inflation at the wholesale level, rose in December for the first time in three months. The markets will be watching to see if inflation at the wholesale level begins to impact the consumer level.

Why does it matter?
The Fed will continue to monitor inflation reports closely, as it decides when to further taper its Bond purchases. Remember that the Fed has already started tapering its purchases of Treasuries and Mortgage Bonds. The timing of the Fed’s decision to further taper these purchases could have a big impact on Mortgage Bonds and home loan rates this year, and it’s an important story to continue monitoring.

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