Inflation Is 33% Higher Than Reported And Mortgage Rates Benefit (For Now)

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When inflation is present, mortgage rates tend to rise.

It's good fortune for rate shoppers, therefore, that the government's been under-reporting inflation over the past 2 years.

How The Consumer Price Index Works

Each month, the government's Bureau of Labor Statistics publishes the Consumer Price Index, a "Cost of Living" index for Americans. The BLS figures are raw numbers benchmarked against a starting value from 1982.

In 1982, CPI was 100.  Last month, it was 221-and-change.  This tells us that, over the last 28 years, the cost of living has more than doubled.

However, when the BLS writes its press release, it doesn't use raw as-compared-to-1982 price data. Instead, it shows increases/decreases in CPI in terms of the change from the month prior.

This figure is expressed as a percentage, rounded to one decimal.

CPI Rounding Errors Compound Over Time

Rounding inflation data to one decimal point is amazingly imprecise -- especially when you consider how important inflation figures are to the nation's monetary and economic policies.

Because of its imprecision, there aren't many other places you'll find 1-decimal rounding in life. Just think what rounding to one decimal place would do to baseball, for example. 1-decimal rounded, both Ted Williams and Delino Deshields are career .300 hitters.

1-decimal rounded, solving for Pi is a piece of cake at 3.1.

But because the government's reporting of inflation is imprecise (incomplete?), so is Wall Street's perception of the economy. Inflation data influences mortgage bond trading and, therefore, mortgage rates, too.

A 33% Inflation Understatement In The Last 12 Months

Inflation has been very low since September 2009.  So low, in fact, that the term "deflation" keeps popping up on Wall Street. But a closer look at the data shows those concerns may be overblown.

Look at the rounded/non-rounded comparison from the past 12 months.

• Sum of rounded CPI data from the government : +0.6 percent
• Sum of non-rounded CPI data from the government : +0.802 percent

Inflation is running 33% hotter than expected.

And looking back two years, it's similarly bad.  The government report consumer inflation up 2.1% over the last 24 months. Non-rounding, that same figure rises to 2.481 percent -- a difference of 0.381.

Use The "Inside Information" To Your Advantage

Mortgage rates should be rising right now, but they're not. Wall Street's oversight should be your gain.

If you haven't locked a mortgage rate yet and want to take advantage of today's low rates, call orwith the basics of what you're trying to do.

No need for a novel -- just some bullet points. Wait for my reply in which I'll ask some follow-up questions, and will then send your pricing. If you like the rate I give you, let me know and I'll lock it for you. We'll start working on your closing right away.

So long as inflation is under-reported, there's going to be opportunity for low mortgage rates. Don't miss the boat -- rates can't stay this low forever.