"PEOPLE HAVE A LOVE-HATE RELATIONSHIP WITH INFLATION. THEY HATE INFLATION…BUT LOVE EVERYTHING THAT CAUSES IT." William E. Simon A classic “catch 22”, and very true…no one likes prices to go up, but everyone desires a healthy, vibrant economy. And once again, inflation was a hot topic last week, as the headliner Consumer Price Index and Producer Price Index Reports indicated that inflation seems very tame of late. Other economic and financial news was mixed, and Mortgage Bonds moved very little over the course of the week, leaving home loan rates largely unchanged overall.

But some interesting signals indicate that some changes may be brewing. Read on, and “test your hand” at predicting home loan rate movement with technical analysis.

"BACK IN MY DAY, A MOVIE USED TO ONLY COST A DIME, POPCORN A NICKLE. WHAT’S THIS WORLD COMING TO?" AH YES, WE’VE HEARD IT ALL BEFORE. SO…WHAT IS THIS WORLD COMING TO? TO SEE HOW INFLATION COULD HIT YOUR WALLET IN THE FUTURE, USE THIS WEEK’S MORTGAGE MARKET VIEW CALCULATOR TO TAKE A LOOK BACK.

Without much economic news on the calendar this week, what can be expected? Believe it or not, a tool was developed in the 1950’s that can help give us some clues. Dr. George C. Lane – who started in the financial industry as a “gopher”, setting up projectors and getting coffee for an investment club – noticed an interesting pattern. In an upwardly trending market, Stock or Bond prices tend to close near their high…whereas during a downward trending market, prices tend to close near their low. Seems obvious, right? But George noticed that right before these trends reversed, an interesting phenomenon would often appear. Before an upward trend would reverse lower, prices would start to cluster around the high levels, as if they were unable to break above the ceiling. And during the trading day, prices would be unable to sustain any upward momentum or hold any gains, thus halting any advances in their tracks. Quite simply, the opposite scenario would play out during declining markets that were about to reverse higher. Now he gave it an ugly name…the “Stochastic Oscillator”…but let’s see this beauty in action.

Take a look at the chart below, where you can see that Mortgage Bonds have been trending lower in the past couple of weeks, causing home loan rates to worsen slightly. But notice towards the right of the chart, how Bond prices have begun to cluster around the low point in their range lately, halting any further price erosion and giving us clues that a reversal may be in the works. A reversal would take Bonds in which direction? You got it – this technical signal says Bonds may move higher, helping home loan rates to improve.

Now of course, any major geopolitical or financial news that hits the wires would likely outweigh this technical signal, but with a light economic calendar in store, we may just be in luck.

Just about everything, if you earn or spend any money. The Consumer Price Index (CPI) measures the rate at which prices on goods and services appear to be increasing, thereby diminishing our buying power. How does it work?

To measure inflation via the CPI, the government chose 1984 to be the “baseline” year, setting that year equal to 100. Previously, the baseline year had been 1967. Each and every month, prices are surveyed around the country for a basket of typical consumer goods, such food, clothing, and gasoline. Using the baseline year, a number is assigned showing the new relative price for that basket. So if the basket of goods cost $100 in 1984, and that same basket cost $175 now, the Index would stand at 175.

But since most people really don’t care how today’s prices compare to 1984’s, the number most widely watched is the percent of change over the previous month. Last month’s Index showed very tame numbers, indicating that consumer prices appear to be stable for the moment.

So we’ve all hear the old…“Back in my day, a movie used to cost a dime and popcorn was a nickel…what’s this world coming to?” Well, to see how inflation might impact your wallet in the future, just take a look back. Use this simple calculator to see how the buying power of a dollar has changed over the years.

Try out the year of your birth, your marriage, your child’s birth – any year of significance – and see how the Consumer Price Index and Inflation may impact much more than your movie going habits. It’s definitely a headline to watch!

After last week’s busy economic calendar, this week quiets down significantly. All times listed in the table below are Eastern.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

For the week of June 20 – June 24