Overview: Weak data on retail sales and inflation set a positive tone for mortgage rates over the past week. Strong housing data had little impact. Mortgage rates ended the week lower.

The retail sales and inflation data released on Friday both fell short of the expected levels. Excluding the volatile auto component, retail sales in June declined for the second straight month. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator. Since weaker than expected economic data reduces the outlook for future inflation, this report was positive for mortgage rates.

The most recent inflation data showed that the annual rate of inflation still is not rising. Fed officials would like to see inflation climb to their target level of 2.0%. In June, however, the core Consumer Price Index (CPI), which excludes food and energy, remained well below that level. Low inflation is good for mortgage rates.

While it had little market impact, the housing data released on Wednesday was encouraging. After declining for three months, single-family housing starts jumped 6% in June, and the results for May were revised higher. In addition, permits for single-family homes increased by a comparable amount in June. A shortage of inventory has been holding back home sales in many markets, so it was nice to see a boost in the construction of new homes. Week Ahead

Looking ahead, the next European Central Bank meeting will take place on Thursday. No change in policy is expected, but investors will be looking for hints about the plans for its bond purchase program. The next U.S. Fed meeting will take place on July 26. Once again, investors do not expect much new information about future policy at this meeting, but any additional guidance could affect mortgage rates. In addition, the Existing Home Sales Report will be released on July 24, followed by New Home Sales on July 26. The first reading for second quarter Gross Domestic Product (GDP) will come out on July 28.