Inflation Fears Boost Mortgage Rates

By:: Peter King | March 24, 2011

Mortgage rates ticked upward this week, nudged by higher-than-expected inflation data that drove up the cost of borrowing.

Average rates on 30-year fixed-rate mortgages rose to 4.81 percent this week, according to the weekly Freddie Mac rate survey, up from 4.76 percent previously. Rates on 15-year fixed rate loans increased to 4.04 percent, up from 3.97 percent last week.

Initial interest rates on adjustable rate mortgages rose as well, with 5-year Treasury Indexed ARMs rising to 3.62 percent, up from 3.57 percent previously.

Frank Nothaft, Freddie Mac chief economist, attributed the rise in part to last week’s release of higher-than-expected inflation figures for February. The latest Consumer Price Index, released last Thursday, showed a 2.1 percent annual increase in February, compared to 1.6 percent the month before.

Most of the gain was attributed to rising prices for food and petroleum, which tend to be volatile. Oil prices in particular have been driven up by recent events in the Middle East, particularly the rebellion in Libya, a major oil producer.

Reports this week have indicated that produce prices should begin falling soon as spring crops start to come in. Produce prices soared this past winter after cold weather in the southern United States and Mexico caused widespread damage to fruit and vegetable crops there.

The core rate of inflation, meanwhile, rose to 1.1 percent in February, up from 1.0 percent, according to the CPI.

Inflation typically drives up interest rates because lenders need to charge a higher rate of return in order to stay ahead of the shrinking value of the dollar that results.

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National Rates

Loan Type	Today	+/-
30 yr fixed	3.72
15 yr fixed	3.03
5/1 ARM	2.75

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