Mortgage rates fell this week, reaching their lowest level in a month, driven by rising COVID-19 cases and a vaccine setback. Continuing a trend from the last couple weeks, if not several months, rates offered a muted response in recent days to economic data releases that normally would likely have a larger impact.

Two readings on inflation released in the last week – the Producer Price Index and Consumer Price Index for March — both showed stronger-than-expected upward price pressures beginning to materialize. Rising inflation weakens the value of bonds, which causes yields to rise and often places upward pressure on mortgage rates. However, the muted reaction to this week’s reports indicated that the market views the price pressures as transitory – that is, as a temporary occurrence due to weak prices a year ago — rather than a signal of runaway price growth. But while the market offered a muted reaction to those reports, pandemic-related developments continue to affect rate movements.

Rising COVID-19 cases across the country and the pause on the Johnson & Johnson vaccine introduced fresh uncertainty to the market and placed renewed downward pressure on rates, helping drive them to their lowest level in a month. But despite this week’s pullback, the outlook for rates is likely still upward, barring any additional setbacks for the nation’s recovery from the pandemic.