Consumer Inflation Remains Hot But Is Hope Ahead?

Besides causing higher prices, inflation is the arch-enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s revised rate of return. If inflation rises, investors demand a rate of return to combat the faster erosion due to inflation, causing interest rates to grow, as we’ve seen this year.

However, when we look at how inflation is calculated, there is hope that it may start to move lower in the months ahead.

Inflation is calculated on a rolling 12-month basis, which means that the total of the past 12 monthly inflation readings will give us the year-over-year inflation rate. The inflation readings that will be replaced will be much higher in the future, so if we see lower monthly readings this fall and next year, the annual inflation rate will move lower. For example, when September 2022 was released last week, it replaced the data for September 2021 in the calculation of yearly inflation.