When the Fed analyzes inflation data, they tend to focus more on the Core numbers because they strip out volatile food and energy prices which have less influence by the Fed. The Core rate of the CPI report increased by 0.4% in May. This was right in line with expectations. Year over year, Core CPI decreased from 5.5% to 5.3% which was just about in line with expectations as well.
Seeing overall inflation come down is a good sign for the bond market and a great indicator that mortgage rates should head downward. Mortgage rates are related to mortgage-backed securities. Inflation is the arch-enemy of the bond market because as inflation rises, it erodes the investors’ return on their investment. And, as reported in the May Consumer Price Index inflation is in fact decreasing year over year. In general, this progress should bode well for the bond market and lower mortgage rates should follow.
Source : bls.gov