Record Decline in Key Inflation Index

The Consumer Price Index was down by a full 1% for October. This is the largest decline since the government began keeping records in 1947. Much of the decrease is attributed to the drop in gas prices, but even the core rate, which excludes volatile food and energy, was down by 0.1%. The drop in the core rate is significant since it's the first time that index has declined since 1982.

This news follows the Producer Price Index's own record drop of 2.8% on Tuesday the 18th. The Consumer Price Index along with the Producer Price Index are two of the main indicators of inflation, and inflation is among the most significant factors that influence mortgage rates.

Inflation eats away at the value of fixed rate investments like mortgages. It's easy to see why nobody wants to lend money at 5% if inflation is 6%. In economic times like these, inflation is typically not a concern and long term rates tend to benefit.

So while today's news may not be good news for your stock portfolio, it's great news if you're looking to lock in a low fixed rate. Sure enough, this morning's mortgage rates are looking better than they did yesterday. The threat of deflation and the damage it can do to the economy is likely to be the headline today, but the combination of lower prices and lower interest rates can actually be a boon to potential home buyers.