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Inflation has been in the news a lot lately. But the reports and experts don't always seem to agree on whether inflation is really a concern or not. In fact, sometimes the different reports appear to contradict each other. For example, a couple of weeks ago the Core Producer Price Index (PPI) reported that inflation was slightly hotter than expected. However, the Core Consumer Price Index (CPI), which measures inflation at the consumer level, came in slightly cooler than expected.

To make matters more confusing, sometimes the same person even seems to say contradictory remarks. Take, for example, the recent Fed Chair's Press Conference. In his press conference remarks, Fed Chair Ben Bernanke indicated that inflation has picked up in recent months but long-term inflation remains subdued.

Comments like that can be confusing. So let's clear it up:

Although those ideas may seem contradictory, they're not really. They actually focus on different aspects of inflation. For example, the PPI and CPI reports mentioned above actually look at different aspects of the economy. The PPI shows us what's going on at the wholesale or production level, while the CPI focuses on what's happening with people like you and me who consume products. When you look at them that way, you see that inflation is on the rise at the wholesale level, but it isn't being passed on to consumers - like you and me - at least not yet.

The overall message is that inflation is most certainly on the rise, but it remains somewhat tame for the moment in terms of what consumers are experiencing.

But what does this mean to home loan rates?

An important rule to remember is that inflation is the archenemy of Bonds and home loan rates. Let's look at why.

We'll start by clarifying a couple of terms: inflation and deflation. Inflation occurs when prices climb higher. Deflation, on the other hand, is when prices on goods and services fall lower. Deflation is actually good for Bonds and home loan rates. That's because the fixed payment that a Bond provides to an investor goes further in a deflationary environment.

But the exact opposite is also true - meaning that fears of inflation negatively impact Bond prices and home loan rates. So, talk about potential inflation is bad for Bonds and home loan rates.

For now, home loan rates are still very attractive. If you have been thinking about purchasing or refinancing a home, call or email me to learn more about how you can benefit from the current situation.