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Higher crude prices and troubles in the financial markets have returned in the past week to reignite fears of inflation and the possibility of a collapse by another large financial institution. Crude jumped almost 5% to over $121/barrel for October delivery in Thursday’s trading session due to geopolitical turmoil in Russia. Falling crude prices in the past few weeks gave the market some hope that headline inflation in the coming months would ease but a rebound in crude would maybe force the Fed’s hand to hike rates before the end of the year. A Barron’s article over the weekend also reignited fears that the government may have to step in and bail-out both GSE’s, Fannie Mae and Freddie Mac. That news has put pressure on financials all week long.

After remaining relatively stable in the last four months, leading indicators dropped in July indicating that further weakening in the economy can be expected in the months ahead. The leading index posted a 0.70 point drop in July to 101.20 from an upwardly revised June of 101.90. Only three out of ten components in the leading index posted monthly gains in July.

July's consumer inflation data showed inflationary price pressures continuing to linger in the economy due to higher food and prices. The CPI increased 0.8% in July on a seasonally-adjusted basis while the core CPI, which excludes often volatile food and energy prices, increased a seasonally-adjusted 0.3% in July. On an unadjusted basis, headline CPI increased 5.6% from its year ago levels while core CPI increased 2.5% year-over-year in July. Headline consumer prices posted its largest year-over-year gain since January 1991.

New and existing home sales both declined in June. New home sales in June declined for the second straight month after posting its first monthly increase since October 2007 in April. Sales eased 0.6% in June to a seasonally-adjusted 530,000 homes, down from a revised May figure of 533,000. Sales for the previous three months, however, were revised higher by 50,000 units. The number of new homes for sale continued to decline as builders continue to scale back production. New home inventory declined to 425,000 which is the lowest it has been since November 2004. In June, median new home prices rebounded from their lowest levels since December to $230,900.

Annualized sales of total existing homes in June declined after posting its first monthly increase since February last month. Sales declined 2.6% from May levels to 4,860,000 units. Sales of existing homes are down 15.5% from the 5.75 million units in June 2007. Median existing home prices in June increased for the fourth straight month to $215,100 from a revised $207,900 in May. This is the highest median existing home prices have been since August 2007. The number of existing homes for sale increased a slight 0.18% to 4.49 million units. At the current sales pace, there are 11.1 months of existing homes supply on the market. Existing home affordability declined for the fourth straight month due to increases in both mortgage rates and existing home prices in June.