The Labor department reported Thursday that the consumer price index rose 2.5 percent last year. The Fed has been watching the index very closely for signs of trouble due to the surge in energy costs in recent years. As of right now, the core inflation rate appears to be in check. Additionally it was reported that labor market is in good shape and initial jobless claims fell by 8,000 last week. This represents the lowest level in the last 11 months and signals that the job market is in good shape despite weakness in the auto sector and housing. This is all good news for the housing market. Low inflation should help keep mortgage rates low. A strong job market can only have a positive effect on the housing market.