Inflation may not be cooling off after all. The latest data from the government shows that consumer prices and producer prices both rose more than expected in January, The consumer price index released by the Labor Department showed the CPI increased by 0.5% month-over-month and 6.4% year-over-year. The core CPI, which excludes food and energy, also came in above expectations. More expensive shelter costs made up more than half of the increase.

Markets were rocked after the CPI release with the Dow Jones industrial average falling about 200 points at the start of trading. The 10-year Treasury note yield spiked on the news, too, reaching a high of 3.79% to end the day. 

The Labor Department released the producer price index a couple of days later showing the PPI increased by 0.7% month-over-month after a 0.1% decrease in December. The core reading excluding the food and energy also increased above expectations for the month. The 10-year yield rose again on the PPI news and topped 3.8% in the early Thursday morning trading. 

Sandwiched between the CPI and PPI reports was the Commerce Department's retail sales data for January which showed consumer spending was up 3% month-over-month against the expectation of a 1.9% increase. Markets did not react positively to the increased spending and ended slightly lower on the day.

Overall, this last week of data was a blow to investors who had hoped the Federal Reserve's quantitative tightening measures were steadily making an impact on inflation. Granted, one month of readings does not make a trend, but it will still weigh on the minds of the Federal Open Market Committee members at their next meeting March 21-22. The FOMC will also give its summary of economic projections at that meeting. 

The consequence of the sour economic data over the last week is that mortgage interest rates generally rise and fall based on the trajectory of the 10-year yield. A rising 10-year note yield means rising mortgage interest rates. 

Both rates and the 10-year yield were down to start the year which helped jumpstart mortgage application volume. That has since waned due to less positive economic data putting upward pressure on rates. The Mortgage Bankers Association's weekly application survey showed applications decreased by 7.7% week-over-week, further highlighting the extremely rate-sensitive environment we're living in. 

The MBA's Vice President and Deputy Chief Economist Joel Kan said in the release, "Purchase applications dropped to their lowest level since the beginning of this year and were more than 40 percent lower than a year ago. Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year's levels and have significantly reduced buyers' purchasing power."

Freddie Mac's 30-year fixed-rate mortgage average reflected the volatile market, rising by 20-basis points to 6.32%. This was the second consecutive week of rate increases. Freddie Mac analysts noted, "The economy is showing signs of resilience, mainly due to consumer spending, and rates are increasing. Overall housing costs are also increasing and therefore impacting inflation, which continues to persist."