What Does CPI Infer About Interest Rates?

On today’s show, we are taking a look at the latest consumer price index reading for the month of July in the United States. July was the fourth straight month of declines in the consumer price index with a month over month increase of 0.2% an annual rate of 2.9%.

As real estate investors, we pay attention to this because of the influence it might have on setting interest-rate policy. The most recent federal reserve announcement which held the short term fed funds rate steady, was looking for continued progress in the fight against inflation in order to gain the necessary confidence to lower interest rates.

Many of the analysts I follow her predicting a September rate cut of something in the range of half a percentage point.

However, for real estate investors, our interest rate is determined by the yield on the US tenure treasury and for investors it is indexed to either the five year or 10 year Canadian mortgage bond.

So who sets the yield on the 10 year treasury? It’s price is determined by the laws of supply demand for those bonds.