Prospective homebuyers finally received some encouraging inflation news this week. After months of stubborn price growth, offered another sign that some of those pressures may be easing. The Consumer Price Index rose 3.4% annually in July, down slightly from 3.5% in June and more noticeably from the 4.2% rate recorded in May. Core inflation, which excludes food and energy prices, also edged lower, dropping from 2.6% in June to 2.5% in July.

Those declines arrive at an important time for prospective homebuyers. , with the average 30-year fixed rate at 6.75% as of August 12 — which is significantly higher than the sub-3% mortgage rates that were available at the start of the decade. But with the Federal Reserve weighing both inflation trends and changes in the labor market, each new economic report has the potential to impact where borrowing costs head from here.

That makes the latest inflation figures particularly relevant for those planning to buy a home or refinance one soon. Understanding how the latest inflation decline fits into the broader economic picture can help borrowers understand what could happen to mortgage rates next — and whether this latest inflation news is as encouraging as it appears.

Is the inflation drop good news for mortgage rates?

Falling inflation is generally an encouraging sign for mortgage rates, but that doesn't mean home loan rates will immediately drop every time inflation does. That's because mortgage rates are influenced by several parts of the economy, and inflation is only one of those driving factors.

Inflation matters in this equation because mortgage rates are closely connected to what's happening in the bond market — particularly with the 10-year Treasury yield. When inflation is high or appears likely to stay high, investors typically want higher returns on long-term bonds to make up for the fact that inflation reduces the purchasing power of the money they'll receive in the future. That can push Treasury yields higher, and mortgage rates often move higher alongside them.

And the reverse can happen when inflation cools. If investors become more confident that price growth is slowing, Treasury yields may fall, giving mortgage rates room to move lower, too. So the July CPI report, which showed inflation declining for the second consecutive month, is a potentially positive development for mortgage loan borrowers.

The latest inflation figures could also affect expectations for the Federal Reserve. The Fed doesn't set mortgage rates, but its decisions can influence the financial markets that do. When inflation is running too high, the Fed typically has less flexibility to cut its benchmark interest rate. As inflation moves closer to the Fed's 2% target, however, policymakers may have more room to lower rates, particularly if other economic conditions support doing so.

Inflation isn't the only economic indicator pointing to a potential shift, though. The latest jobs report showed , a much weaker result than economists had anticipated. Signs that the labor market is weakening, combined with cooling inflation, could increase expectations for lower Fed rates. If investors begin to expect declining borrowing costs, mortgage rates could start responding even before the Fed actually makes a move.

Still, that doesn't guarantee a significant mortgage rate drop is around the corner. Inflation remains above the Fed's 2% goal despite the recent declines, and one or two favorable reports aren't enough to establish where the economy is headed.

For homebuyers, the July inflation report is better viewed as one piece of a much larger puzzle. If inflation continues falling and the labor market continues to soften, the conditions for lower mortgage rates could improve. But the next inflation and employment reports — along with how financial markets react to them — will help further determine whether mortgage rates actually move meaningfully lower.

How to find a low mortgage rate in today's market

With mortgage rates still hovering well above 6%, even a relatively small difference in the rate you're offered can have a meaningful impact on your monthly payment and total borrowing costs. In turn, it makes sense to focus on the factors you can control rather than trying to perfectly time the broader rate market.

Start by shopping around with several mortgage lenders. Rates, fees and loan terms can vary significantly from one lender to another, even for the same borrower. Getting quotes from at least three to five lenders can make it easier to identify the most competitive combination of rate and closing costs.

It can also pay to strengthen your borrower profile before applying. A higher credit score, lower debt-to-income ratio and larger down payment can make you less risky in a lender's eyes, potentially helping you qualify for better terms. Paying down revolving credit card balances, correcting credit report errors and avoiding new debt before applying for a mortgage can also help.

You should also compare more than just the advertised interest rate. Review each loan's annual percentage rate (APR), which incorporates certain borrowing costs and can provide a clearer picture of what you're paying. If you expect to remain in the home long enough to recoup the upfront expense, buying mortgage points to lower your rate may be worth considering.

Don't overlook different loan types, either. Depending on your finances and eligibility, government-backed mortgages or adjustable-rate mortgage loans could offer lower initial rates than certain conventional fixed-rate options. Just make sure the loan structure fits your long-term plans rather than choosing it based solely on the starting rate.

The bottom line

The July inflation report provides another indication that the sharp price pressures seen earlier this year may be easing, and that could ultimately create a more favorable backdrop for mortgage rates. But mortgage rates don't move based on inflation alone, and with inflation still above the Fed's target and economic uncertainty remaining elevated, you shouldn't count on a dramatic decline in rates in the near term. If you're ready to buy a home, however, you could benefit from comparing multiple lenders and strengthening your financial profile now.