Inflation data shook up the markets in the second week of August—only this time the numbers appeared to be softening. The Labor Department's producer price index (PPI) showed the cost of wholesale goods fell by 0.5% in July. That's the first time in two years the PPI saw a month-over-month decrease. On an annual basis, wholesale prices were up by 9.8% which was well below June's year-over-year increase of 11.3%.

Consumer prices also showed signs of easing with lower gasoline prices dragging down the annual gain. The consumer price index (CPI) released by the Bureau of Labor Statistics showed consumer prices rose by 8.5% year-over-year in July. On a monthly basis, the CPI was unchanged with declining energy and gasoline prices offsetting rises in food and shelter costs. 

Just after the PPI was released, yields on the 2- and 10-year Treasury note yields both rose, hitting 3.239% and 2.891%, respectively. While that means the yield curve is still inverted, it is not as wide of a spread as it has been which is encouraging to investors and economists. Every recession has been preceded by an inversion in the yield curve. 

The data points are also extremely important as it pertains to future rate hikes by the Federal Reserve. The Federal Open Market Committee does not meet in August and members have said they will take time to evaluate how the latest rate hikes are impacting inflation before making any final decisions on future increases. 

The volatility in the stock market continues to bleed over into the housing industry as mortgage rates moved back over the 5% mark on average. The 30-year fixed-rate mortgage average came in at 5.22% according to Freddie Mac's latest report. 

Freddie Mac's economists said in their release, "The 30-year fixed-rate went back up to well over five percent this week, a reminder that recent volatility remains persistent. Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market. Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer."

Fannie Mae's latest Home Purchase Sentiment Index (HPSI) decreased by 2 points in July to 62.8—its lowest level in over a decade. Only 17% of respondents said that they believed now was a good time to buy a home. It is interesting to note that home sellers have also started to feel more pessimistic about the current market. The HPSI also showed "the percentage of consumers believing it's a good time to sell has begun ticking downward in recent months, falling from 76% in May to 67% in July."

Fannie Mae's Senior Vice President and Chief Economist, Doug Duncan, said "Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it's a bad time to buy, as well as sell, a home. Additionally, consumers appear to be indicating that selling conditions are softening, as the 'Good Time to Sell' component has declined meaningfully over the past two months, and, on net, fewer consumers expect home prices to go up."