US inflation fear sends mortgage rates to eight-month high

US fixed mortgage rates surged to their highest in almost eight months after central bankers jolted financial markets with concerns of accelerating inflation.

The average rate on a 30-year mortgage jumped to 6.32 per cent up from 6.09 per cent last week and the highest since October.

The increase in rates came after Federal Reserve and European Central Bank officials stressed inflation is a bigger problem for global economies than slow growth. James Bullard, president of the St Louis Fed, kept the theme alive, telling reporters that the central bank must deal with "inflationary consequences" of low rates.

Investors are demanding higher yields on longer-term investments, such as mortgage-backed securities, whose returns would be eroded by faster inflation. Lenders that sell home loans into MBS programmes of Freddie Mac and Fannie Mae respond by raising rates to consumers.