Let’s talk about how this can affect you.

The November read of the Consumer Price Index (CPI) was released on Friday at 6.8%.  This number was up slightly higher than estimates and 0.6% higher than its last record-breaking release last month.  Core CPI, which strips out volatile food and energy prices, increased by 0.5% month over month and was up 0.3% year over year to 4.9%, which is the highest core number since mid-1991.

This CPI report measures pricing changes or fluctuation on a fixed basket of goods.  Digging deeper, some noteworthy price changes were in food and energy which had the fastest annual gains in thirteen years.  Food was up 6.1% year over year and Energy was up a whopping 33.1% year over year. Shelter prices which make up about 1/3 of the CPI report, increased 3.8% year over year which was the highest number since 2007.  Used cars and trucks jumped an enormous 31.4% year over year…one of the largest gains ever.

Remember, Inflation is the arch enemy of bonds.  So, when inflation creeps up, bond pricing tends to react negatively causing mortgage rates to increase.  Consider it like this, you’re on a boat called interest rates and on a sea of inflation.  As the tide or inflation rises, your boat or interest rates will naturally rise.

All of this news is coming just before a very important Federal Reserve meeting which is on December 14th and December 15th.  It is almost necessary that the Fed will have comments of a real inflationary environment and lose the term transitory which means temporary.  If they consider these higher levels of inflation into their plan and taper their Quantitative Easing more aggressively, we may see bond pricing fall even more which would pressure interest rates higher.




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