• There is little good news in the CPI metrics for August, but the numbers also did not surprise to the upside either. Energy was again just plain ugly, and the trends in Sept in Energy are offering ample cause to expect Sept CPI to be more biased to the upside. The economy steady and demand is likely to allow for more cost pass-throughs in price.

• With a 3.4% headline CPI flat to July and Core CPI a tick lower from 2.5% to 2.4%, the high level numbers were little changed. The Sept noise in oil and downstream refined products are seeing the backdrop get worse – not better – with the Houthis now potentially taking the Saudi East-West pipeline out of action and potentially shutting down or severely disrupting the Red Sea oil channels. The Houthi actions could undermine a wider range of product flow across those shipping lanes. As we go to print, the Bab al-Mandab Strait is vulnerable to a new “choke point.”

• The unfolding Canada trade war does not look to get better and could feed unit cost pressures across a wide range of US consumer and supplier chain markets. Steel, aluminum, and various manufactured products are feeling tariffs (buyer pays, no matter what Trump says). Canada does not appear inclined to leverage its natural resource edge to retaliate in that trade mix. The relative need for Canadian aluminum is high in the US even if not for many Canadian steel products. The desire to keep peace with the provinces (notably Alberta and Saskatchewan) could keep Canada from more aggressive export tax alternatives in retaliation. US suppliers will have higher pricing power now in the domestic market.

The above time series plots the headline CPI and Core CPI from the COVID plunge into the supply-demand imbalance year of 2021 and then into the Russian-Ukraine oil spike of 2022. Inflation spiked to a 9.1% headline CPI in June 2022 and 6.5% Core CPI in Feb 2022. That was edged out by the 6.6% Core of Sept 2022.

We see the 3.4% down from the 4.2% in May and the Core CPI on Aug 2024 back down to the Sept 2024 lows. The threat is still how tariffs flow into price structure and working capital management cycles. Next week’s FOMC decision shows high odds of tightening in FedWatch. The probability of a hike is now 86.5%.

In the aftermath of Iran, there has been no hiding from the direct inflationary effects of oil prices and the even more notable spikes in downstream products with a crisis underway in diesel, painful aviation fuel trends, the household cash flow hit from gasoline, and the wide and varied effects across raw materials, power costs, and freight and logistics fallout among the most obvious secondary and tertiary effects.

We already addressed some of the leading indicator price challenges in PPI yesterday (see PPI August 2026: Leading Indicator Signaling Struggling 9-10-26). We look at the data in charts further below, but the +16.3% YoY in Energy, the +28.0% in “Energy commodities,” and +27.4% for gasoline are obvious pressure points. The MoM for Energy of +2.1% follows two negative MoM months (-1.5% July, -5.7% June) with Sept already starting off badly.

The progress made in July and June often revolved around jawboning by Trump around empty threats of peace breaking out. Short-term trading opportunities abounded for friends and family.

The above chart updates the historical time series for fed funds vs. headline CPI. The latest headline of 3.4% for August is above Biden’s last full month, which was below the 3% line at 2.9%. The chart includes the long-term medians, which underscore that the current compression of CPI and fed funds is “not normal.”

The above chart frames the fed funds vs. CPI differential. “Fed funds minus CPI” is now +0.2% after it had turned negative in May at -0.6% or dramatically different than the long-term median of +0.6%. In its simplest terms, that relationship looks more like accommodation.

With FedWatch odds at over 86% for a tightening next week, we did not see much reaction in the 10Y UST to today’s CPI number after the 10Y got close to the Oct 2025 highs of 4.99% this week. We saw around 4.95% this week, but as we go to print the 10Y UST is 4.97%. That is bad news for mortgage rates also with the Mortgage News Daily survey rate just under 7.1% at 7.08%.

The customized special aggregate CPI indexes posted in Table 3 of the BLS release are troubling in historical context. Those detailed above are our favorites, but there is a long list worth reviewing.

Note: We had to be selective in the months included in the table in order to show more of the timeline. May 2026 (not shown) was an especially challenging month (see CPI May 2026: The 4% Rubicon 6-10-26).

“All items less shelter” has been our top pick across time as we have cited in prior research since “Shelter CPI” comes with too many asterisks and derived numbers that do not fit the typical household reality (or even close).

The chart shows “Services” still stubborn above the 3% line in what is a “services economy.” The Services line comprises 63.6% of the CPI index. Table 3 also drives home the stark differential between the Durables CPI (-0.3%) at a 10.6% weighting in the CPI and the much larger Nondurables line at +5.8% CPI for 25.8% of the CPI index. The ability (or desire) to pass through tariff costs has still not hit Durables CPI yet in a meaningful way.

The 3.6% for the “All items less shelter” metric in August is better than the 4.1% in April and the 4.7% of May with the energy spike. Even at the 3% handle now, that metric is still a material contrast with the sub-2% levels of 2024 including 1.9% in Dec 2024 (Biden’s last month). In mid-2023, the level was +0.7%. The FOMC was doing its job the right way by then, and the payroll additions of those 2023 days crushed what was posted on average in 2026.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix of 5 broad categories is the main event even if there are plenty of line items outside this group that matter to consumers.

We will not give much space to our long-held view on the low value of the lines that are “derived” and inconsistent with the household “checkbook experience” and household cash flow. That is notably the case with shelter and the steep deflationary number of -8.5% for health insurance.

Some of those lines speak for themselves at a time when such items as ACA premiums have soared and the deductible offerings are shifting the mix in the wrong direction. Too many people have had to drop coverage or see deductibles spike to find “affordable” health care. There are times when the measurement theories of the BLS econ teams do not work with the real-world consumer experience.

The total energy bucket of +2.1% MoM in August reverses the -1.5% MoM of July and is worse than the -5.7% energy relief of June but is a long way from the +10.9% MoM in March after the onset of the Iran War. The “Energy commodities” line was at +21.3% MoM in March and had set off a chain reaction with lag times.

Energy YoY metrics moved down sharply from +23.5% in May to +15.7% in June and +14.7% in July. The Energy CPI YoY line is back at +16.3% in August. Within Energy, the gasoline CPI of +24.6% in July is ugly but beats the +40.5% gasoline CPI of May. August CPI reports +27.4% YoY with the Strait of Hormuz “shut” again and the Red Sea now also in stress as noted in the bullets. The Iran War remains in chronic uncertainty on how long and how damaging it will be with such an erratic approach to policy. Handicapping odds of escalation or any other scenario is a mug’s game at this point.

We have to say that Hegseth (Trump to a lesser extent) highlighting the Iran war in his 9/11 speech at the Pentagon was a bit misleading in historical comparisons with 15 of the 19 terrorists on the planes from Saudi Arabia and zero from Iran (2 from UAE, 1 from Lebanon, 1 from Egypt). As someone living across the street on 9/11, the White House owes the public facts. Clearly, the Saudis and UAE have other virtues from Trump’s perspective ($$$). Confidence in foreign policy judgment in the Middle East is low when every statement has a domestic agenda to manipulate history.

As we go to print, WTI is over $100 per bbl vs. around $82 in mid-July and Brent is near $105 in contrast to the $88 at this time in last month’s CPI write-up. WTI had a $68 handle in the first week of July. That was a short reprieve.

Housing and healthcare anomalies…

The higher costs of housing are uglier when including financing and the monthly payment pain. CPI metrics do not capture that financing cost effect. Mortgages and the cost of financing do not get factored into the product line CPI. The UST curve and mortgages and auto financing have clearly been going in the wrong direction since 2025 and now well into 2026. 2027 is not looking any better and may well get worse.

With many households crushed by health care premiums (notably the ACA), the consumer is certainly not “feeling the deflation” in health insurance seen in the table at -8.5%. Those that struggle with health care coverage thus get held hostage to the rising costs of services as broken out. The 5.5% for “hospital and related services” is high by any measure with 5.4% for the outpatient subset. In other words, if you lose coverage, that is what awaits you with prices high in absolute terms. Trump’s lack of effort in health care is one of the worst consumer headwinds and notably in the lower part of “the K.”

The above table updates some of the lines near and dear to households. We see a split decision with 3 higher and 3 lower YoY. Airline fares at +23.4% in August are heavily tied to jet fuel costs. These lines are a mixed picture with divergences across lines within these buckets. We will see how much fallout comes from the fare spike in the peak travel season when airlines report Sept quarter earnings.

The Apparel CPI ticked lower from 3.9% to 3.6% after reaching 4.8% in May. Trump looked to inflict pain on the low-cost Asian countries, and we are surprised it is not higher. Trump lost on IEEPA, and that had heavily targeted Asia. Trump is now using the Section 301 “forced labor” strategy to raise tariffs on essentially all trade partners.

More importantly, Trump is now turning to a more flexible provision of the Smoot Hawley Act of 1930 (Section 338) that allows him free reign with no Congressional check. Trump (in theory) can play tariff dictator by using existing legislation on the books. That was not the case with IEEPA. When in doubt, turn to Hoover for sound economic policies. Right? That went so well after 1930.

See also:

Existing Home Sales Aug 2026: Headwinds Still Driving the Story 9-10-26

PPI August 2026: Leading Indicator Signaling Struggling 9-10-26

Weekly Tech Check: Semis vs. Software Push-Pull 9-7-26

Weekly Returns: Benchmarks and ETFs 9-7-26

Duration Daze: Post-ZIRP Bond Returns 9-7-26

UST Market: Curve Meets Knuckler 9-7-26

Payroll Aug 2026: Trouncing Low Expectations is “Positive” with an Asterisk 9-5-26

Market Commentary: The Curve 8-30-26

PCE July 2026: Mixed Consumption, Stubborn Inflation 8-26-26

2Q26 GDP: 2nd Estimate 8-26-26

US-Canada: Benches Ready to Clear 8-22-26

US-Canada Tariffs: Protection Racket 8-19-26

• The reality of the PPI release line items and the fresh release of inflation variables is that the bottom-up cost line items remain stacked against the weak attempts at political jawboning and trying to paint a positive picture on inflation.

• Energy PPI at 24.4% YoY and 4.2% sequentially MoM for August comes before the recent September setbacks with WTI at $102 per bbl as we go to print and diesel in a spike at a national average of $5.98 across a wide range.

• The CME FedWatch odds for a Sept hike stands at over 71% today and the 10Y UST at 4.95% is whispering to the Oct 2023 closing high of 4.99% even as Mortgage News Daily survey crosses into a 7% handle just under 7.1%.

We update the timeline for the Producer Price Index Final Demand. The numbers are most certainly not supportive of the “What? Me Worry?” sales pitch from Trump and Vance.

The above table breaks out some of the important PPI metrics that we monitor plus a few smaller line items we like to watch (Construction, Private Capital Equipment). The PPI release provides an extensive and lengthy range of metrics across over 20 pages in the release tables.

The YoY % column offers little support for optimism if you just scan down the list.

The “Final demand” goods” at +7.7%” and “Final demand services” at +4.5% reassures that everything is fine except for goods and services. Bessent must feel better already. Same for Hassett.

Some major “intermediate demand” lines are not reassuring with 11.5% on “processed goods” and 9.3% on “materials and components for manufacturing.” These are tough numbers to feel good about beyond a narrow audience of somnambulists wearing red hats.

See also:

Weekly Tech Check: Semis vs. Software Push-Pull 9-7-26

Weekly Returns: Benchmarks and ETFs 9-7-26

Duration Daze: Post-ZIRP Bond Returns 9-7-26

UST Market: Curve Meets Knuckler 9-7-26

Payroll Aug 2026: Trouncing Low Expectations is “Positive” with an Asterisk 9-5-26

Market Commentary: The Curve 8-30-26

PCE July 2026: Mixed Consumption, Stubborn Inflation 8-26-26

2Q26 GDP: 2nd Estimate 8-26-26

US-Canada: Benches Ready to Clear 8-22-26

US-Canada Tariffs: Protection Racket 8-19-26

• PCE inflation metrics remain stubborn and well above target with +3.7% YoY headline PCE and 3.3% core. Both were flat to last month in YoY metrics, but both were higher MoM vs. June. Thet signals no relief yet at the high-level metrics.

• Among interesting YoY comps in critical lines, we see +15.3% on “energy goods and services” (down from +15.8% in June and +24.1% in May), “durable goods” at +3.4% (up from +2.9% in June), “nondurable goods” at +3.9% (down from 4.1% in June and +5.5% in May). Services inflation was flat sequentially from June at +3.7%.

• With current dollar and real DPI (disposable personal income) running ahead of consumption, the demand side of the consumer remains steady and the savings rate ticked higher this month from 2.6% to 3.0%.

• Financing costs and monthly payment pressures do not show up in the inflation numbers, but tariffs are part of the equation to the extent the tariff (a de facto border tax) flows into the cost of the product and gets passed through in price. The affordability question is easier to answer with any one-time price move. The recurring inflation theories are separate. Products get pricier, margins get squeezed, or some offset unfolds (cost reduction, etc.).

Note: In this commentary we took out the section where we replay the COVID and stimulus history. It eats up some pages and does not change much. Anyone interested in framing the reality of the DPI and PCE numbers back then (in contrast to what the political ax grinders and revisionists call history, please check out one of the old links.)

The above chart frames the timeline for “Effective Fed Funds minus Core PCE.” For this latest July measure, we see the differential at +0.3% vs. the long-term median of 1.4%. The current differential is not much of an inflation deterrent. A slight uptick in inflation with an easing demanded by Trump would take the market back to negative real fed funds.

If one sees inflation moving higher and demands from the White House to take rates lower, history is tossed and inflation discipline abandoned. Fed funds minus the headline PCE price index could be seen as negative real fed funds in May with PCE above 4%. It is now very close. Core PCE is the favorite comp, and that sits at 3.3% for July. The odds per FedWatch of 1 FOMC hike by the Dec 2026 FOMC meeting is 45.3% late today and odds of 2 hikes stand at 23.7%.

The market awaits Warsh and Jackson Hole this week for more commentary on Friday. Expectations are low for material color on market views.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (well below the current 3.7%) and the 2.6% Core PCE median (vs. current 3.3%).

That peak 4.1% PCE headline in May 2026 was dramatically better than where we came from in July 2022 at 7.1% PCE. The current 3.7% headline is still well above the 2.0% target and has been stubbornly high/higher in 2026.

In the context of 2025-2026, the headline PCE price index was 2.6% in Jan 2025 to start Trump 2.0 before the ensuing moves higher. Iran was the dagger in the lower inflation story and is flowing into a range of PPI, Goods, and Services lines as the effects reverberate. Oil and downstream effects are pervasive across the economy.

This is a replay slide that we use as a reminder on how the 2.0% target inflation rate frames up across more recent cycles.

We include the 1997-2026 timeline above as it offers a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s. We will see what comes out of the Warsh working groups in their reviews of Fed policy.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless. Warsh cites what is “to the left of the decimal” (i.e. “2” or “3”) matters the most. As of May, he was at a “4.” Warsh is leaving himself a lot of room even as he buys time with his working groups. The market has reflected some dissatisfaction with that approach. Even if he does not give guidance, he should at least offer views on the moving parts of the curve given Bessent’s recent activities (see Market Commentary: The Curve 8-24-26).

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.4%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest in this cycle. Households have been hit hard by energy costs (gasoline and electric bills and indirect impact of freight and operating costs rising in just about everything across food, goods and services).

The power demands of data centers are going to keep that energy and power line item in the headlines and notably as data centers get pushback in the states given power needs/costs and environmental effects. Life will get sticky in AI and the related ecosystem if the electricity topic cannot be addressed. The phrase “infrastructure bottlenecks” is getting tossed around a lot. That will impact AI valuation assumptions and pricing power questions.

After an oil spike and uncertain direction of the Mideast war, we are reminded that the inflation history on the other side of such events is a very bad one. All we need to do is look back at late 1973-1974 (Arab Oil Embargo) and again in 1979 (the original “Iran oil crisis”) on the way into the 1980-1982 double dip. Much of what unfolded after 1979 was closely tied to refined product inventory management. That period crushed many mature manufacturing industries and led to wholesale restructuring alongside wide deregulation. The industrial and services diversity and credit profiles now are much different and much healthier than the Volcker period.

As of today, the news flow around an Iran-Oman deal offers some hope of a rational outcome even if it is not the desired one on free travel in the strait. WTI posted an $81 handle today vs. $87 last Friday. Trump and Bessent are hyping an Economic D-Day to crush Iran, but some allies are pushing back and China rejected it outright. That is likely to fail also.

The above time series plots headline CPI vs. PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time. The consumer tends to lock in on affordability and purchasing power – as in the “cash in, cash out” impacts on daily life.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware of the line-item trends by product groupings. Relative weights are also useful to help guide the strategic reaction to headline and core inflation metrics.

Food and Energy (i.e. not “Core”) are crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscores that consumers care about discretionary cash flow and how their take-home pay frames up vs. their household basket. “Derived metrics” used by benchmarks such as CPI often do not match up with their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.). Such metrics matter less to many. They care about the reality of increasing health insurance premiums or loss of health insurance, as well as the financing costs for their big-ticket purchases (e.g. autos, homes, boats, appliances, etc.).

Financing costs also are not captured in CPI metrics for Goods. The best example is monthly car payments and monthly mortgages, and the UST curve is not helping at this point. Despite that reality, autos are doing well and home prices are only gradually starting to feel downward pressure after a big post-COVID spike.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through July 2026. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE. July posted a solid move in DPI vs. Consumption.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We saw a fresh low in June of 2.6% while July 2026 just ticked higher to 3.0% in solid income growth. June was the lowest savings rate during the Trump Administration.

The “Why?” of generally declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on the prices of the household basket, tariffs and financing costs.” That is, some consumers may need to borrow to meet basic bills in the realm of the nondiscretionary.

The savings rate dipped below the 4% line in Oct 2025 and posted 3% handles and edged back above 4% for one month (Jan 2026). That savings rate decline can be a function of various forces, but the inflation trends (health care premiums, gasoline, home heating, and financing costs) and related household cash drain are eating more into real wages and the household bottom line.

• The 4.7% PPI for July is a favorable trend from 5.5% in June, 5.9% in May, and 5.7% in April, but it is still a demanding walk from 2.7% in August 2025. The long-term median from 2010 is +2.1% with the most recent cyclical low +0.3% in June 2023 after a cyclical high of +11.7% in March 2022 after the Russian invasion of Ukraine in late Feb 2022.

• The 0% sequential MoM move for Total Final Demand in July follows -0.1% in June and is down sharply from +1.1% in April and +0.8% in March. That is good news. Final demand for Energy goods posted two sharp MoM declines in July at -3.1% and -6.5% for June after +8.2% in May, +7.2% in April, and +10.5% in March. Those running numbers are still working their way through cost lines, producer pricing decisions and working capital cycles.

• The PPI metric and various “slices and dices” are reasonably viewed as a leading indicator to where CPI and PCE inflation are headed, so it will take more relief than what we see to this point to make markets more confident on FOMC and fed fuds and the threat of UST steepening risks. Negative real wage growth is undermining the consumer, more disarray in the Middle East remains a risk, and potential chaos in trade and tariffs (notably with Canada in coming days) add some wildcards.

The above time series updates the running PPI line for “Total Final Demand.” The current total of 4.7% is down from 5.5% in June and down from 5.9% in May when it was basically triple the median since 2010.

There is no hiding from the reality of Iran as energy costs have so many effects on prices and costs directly or indirectly via secondary and tertiary effects. That will include raw materials across the supplier chains and the pricing pressure at the end of those chains. That includes freight and logistics costs to inventory costs. The energy trade rags are constantly framing supply-demand balances from China in the crude markets to painful supply-demand imbalances in downstream products such as diesel.

To what extent tariffs might flow into goods and services pricing will be influenced by trade partner reactions that must still play out at a lag. Trade partners will need to respond to the latest barrage of Trump tariffs and likely attacks by Trump on the Canada and Mexico and recurring tension with the EU.

Trump’s threat to cancel the USMCA and assign Smoot Hawley 1930 (Section 338) tariffs are among myriad possible decision points that tie more into geopolitical posturing than rational economic decision making. There is a scenario where Trump could drive a fresh round of military escalation with Iran (despite the recent “low-keying it”) and end in trade battles with Canada, Mexico and the EU. China ignoring new sanctions could be another trade war game scenario.

The above table breaks out some of the important PPI metrics that we monitor plus a few smaller line items we like to watch (Construction, Private Capital Equipment). The PPI release provides an extensive and lengthy range of metrics across over 20 pages in the release tables.

Even with improvement, PPI is elevated.

The YoY column (2^nd column) tells a story of deteriorating inflation trends in 2026 even if the energy adjustments have flowed into improved sequential trends. The easing of Iran escalation and less daunting scenario-spinning brought some relief. The Strait is still closed, Iran is still blockaded, refined products are still a major macro problem, and the trade tension is going back up again. That flows into plenty of product lines if it gets worse.

We now have a backdrop where the flow-through of the cost pressures could still lead to higher prices and/or costs at various lag times. The potential for a USMCA tariff meltdown puts PPI trends at risk given the resource-heavy nature of Canadian imports and how Canada reacts to the 50% tariff threat. Whether Canada or Mexico will push back is highly uncertain given the tendency of both former NAFTA partners to retreat. High PPI plus more tariffs means either higher prices or narrowing margins.

See also:

CPI July 2026: Slight Breeze, No Chill 8-12-26

The ChatGPT Living Wage Test 8-11-26

Market Commentary: Asset Returns 8-11-26

Existing Home Sales July 2026: Slow Row 8-11-26

Market Commentary: The Curve 8-10-26

Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26

The Curve: Steeper, Inflation Anxiety Remains 8-2-26

Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26

June 2026 PCE: Inflation, Income, and Outlays 7-30-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

• Inflation remains a worry given the mix of variables from cost pressure lags (energy, materials, tariffs) also facing a strange netherworld of Iran and geopolitics. July numbers did not rattle the markets and even showed some stabilization along some critical product lines.

• We do see some major risk factors dead ahead on how the USMCA derailment will play out and how Canada will respond to the increasingly incoherent and antagonistic trade policies. Any dose of resource export taxes by Canada would be at the very least negative for numerous commodities chains. “Commodities” CPI is already at 3.9% and “commodities less food and beverages” is at +4.5%. Energy has enough problems already without Canada slapping export taxes on the discounted heavy crude grades favored by US refiners.

• Our favorite special aggregate indexes are still a darker cloud relative to historical levels with “All items less shelter” well into 3.0% handles vs. the 1% and 2% handles in 2024 to 2025.

The above time series plots the headline CPI and Core CPI from the COVID plunge into the supply-demand imbalance year of 2021 and then into the Russian-Ukraine oil spike of 2022. Inflation spiked to a 9.1% headline CPI in June 2022 and 6.5% Core CPI in Feb 2022 edged out by the 6.6% of Sept 2022.

The inflation roots and causes can face more than a few debates between the monetarist zealots and the sea level “goods and services pricing power” crowd. It is safe to say that recent low 3% handle nominal wage growth should be framed against headline CPI in how consumers face an affordability headwind.

The role of food and energy in the life of a consumer is no small matter. Such weak wage growth in the payroll report and the employment cost index tell an ugly story for household cash flow (Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26, Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26)

The cost of the household basket soared under Biden and kept on rising in Trump 2.0 (Team Trump will only agree with half of that view). That has taken a toll on consumer health and undermined savings rates as covered separately (see June 2026 PCE: Inflation, Income, and Outlays 7-30-26). The good news from the macro side is that the Personal Consumption Expenditure growth story rebounded in 2Q26 from a 1Q26 decline (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26, GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

The above chart updates the historical time series for fed funds vs. headline CPI. The latest headline of 3.4% for July is at least back below the 4% threshold after ending 2024 (Biden’s last full month) below the 3% line at 2.9%. The chart includes the long-term medians, which underscore that the current compression of CPI and fed funds is “not normal.”

The above chart frames the fed funds vs. CPI differential. Fed funds minus CPI is now +0.2% after it had turned negative in May at -0.6 or dramatically different than the long-term median of +0.6%. In its simplest terms, that relationship looks more like accommodation.

FOMC odds are dim from here. As we go to print, the Vegas odds (CME FedWatch) show the odds of no change in fed funds by the Dec 2026 FOMC meeting at 22.5%, 1 hike at 45.1%, 2 hikes at 27.5%, and 3 hikes at 4.9%.

The customized special aggregate CPI indexes posted in Table 3 of the BLS release are troubling in historical context even though there was improvement in July 2026 from June. Those detailed above are our favorites, but there is a long list worth reviewing.

Note: We had to be selective in the months included in the table in order to to show more of the timeline. May 2026 was an especially challenged month (see CPI May 2026: The 4% Rubicon 6-10-26).

“All items less shelter” has been our top pick across time as we have cited in prior research since “Shelter CPI” comes with too many asterisks and derived numbers that do not fit the typical household reality (or even close).

The chart shows “Services” still stubborn above the 3% line in what is a “services economy.” The Services line comprises 63.5% of the CPI index. Table 3 also drives home the stark differential between the Durables CPI (-0.2%) at a 10.5% weighting in the CPI and the much larger Nondurables line at +5.6% CPI for 25.9% of the CPI index. The ability (or desire) to pass through tariff costs has still not hit Durables CPI yet in any meaningful way.

The 3.5% for the “All items less shelter” metric in June is better than the 4.1% in April and the 4.7% of May with the energy spike. Even at the 3% handle now, that metric is still a material contrast with the sub-2% levels of 2024 including 1.9% in Dec 2024 (Biden’s last month). In mid-2023, the level was +0.7%. The FOMC was doing its job the right way by then, and the payroll additions of those 2023 days crushed what was posted for June 2026 and the negative payroll numbers for July 2026 (see Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26, Employment Situation June 2026: Back to a Crawl 7-2-26).

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix of 5 broad categories is the main event even if there are plenty of line items outside this group that matter to consumers.

We will not give much space to our long-held view on the low value of the lines that are “derived” and inconsistent with the household “checkbook experience” and household cash flow. That is notably the case with shelter and the steep deflationary number of -8.0% for health insurance. Some of those lines speak for themselves at a time when such items as ACA premiums have soared and the deductible offerings are shifting the mix in the wrong direction. Too many people have had to drop coverage or see deductibles spike to find “affordable” health care. There are times when the measurement theories of the BLS econ teams do not work with the real world consumer experience.

The total energy bucket of -1.5% MoM is worse than the -5.7% energy relief of June but is a long way from the +10.9% MoM in March after the onset of the Iran War. The “Energy commodities” line was at +21.3% MoM in March and that set off a chain reaction with lag times.

Energy YoY metrics are down sharply from +23.5% in May to +15.7% in June and +14.7% in July. Within energy, the gasoline CPI of +24.6% in July is ugly but beats the +40.5% gasoline CPI of May. With the Strait of Hormuz “shut” again, the war enters a stage of uncertainty on how long and how damaging. Handicapping odds of escalation or any other scenario is a mug’s game at this point.

As we go to print, WTI is at $82 and Brent is near $88. WTI had a $68 handle in the first week of July. That was a short reprieve.

Housing and healthcare anomalies…

The higher costs of housing are uglier when including financing and the monthly payment pain even if the CPI metrics do not capture that effect. Mortgages and the cost of financing do not get factored into the product line CPI. The UST curve and mortgages and auto financing are clearly going in the wrong direction in 2025-2026 and very likely could get worse.

With many households crushed by health care premiums (notably the ACA), the consumer is certainly not “feeling the deflation” in health insurance seen in the table. Those that struggle with coverage then get held hostage to the rising costs of services as broken out. The 5.4% for “hospital and related services” is high by any measure with 5.8% for the outpatient subset. In other words, if you lose coverage, that is what awaits you with prices high in absolute terms. Trump’s lack of effort in health care is one of the worst consumer headwinds and notably in the lower part of “the K.”

The above table updates some of the lines near and dear to households. Airline fares at +25.5% in July are heavily tied to jet fuel costs. These lines are a mixed picture with divergences across lines within these buckets.

The Apparel CPI was flat at 3.9% after reaching 4.8% in May. Trump looked to inflict pain on the low-cost Asian countries, and we are surprised it is not higher. Trump lost on IEEPA and that had heavily targeted Asia. Trump is now using the Section 301 “forced labor” strategy to raise tariffs on essentially all trade partners. He is also turning to a more flexible provision of Smoot Hawley of 1930 (Section 338).

See also:

The ChatGPT Living Wage Test 8-11-26

Market Commentary: Asset Returns 8-11-26

Existing Home Sales July 2026: Slow Row 8-11-26

Market Commentary: The Curve 8-10-26

Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26

The Curve: Steeper, Inflation Anxiety Remains 8-2-26

Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26

June 2026 PCE: Inflation, Income, and Outlays 7-30-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

• After a 0.5% 1Q26 for PCE growth and the same +0.5% for both Services and Goods, the 2Q26 GDP advance report showed a solid rebound with the monthly PCE release also showing May and June with PCE comebacks. The consumer took some blows but is still swinging.

• The main takeaway for the two releases today (GDP and PCE) is that inflation is a long way from target rates but the consumer and corporate sector are hanging tough.

• For the June monthly PCE price data, we see 3.7% headline inflation and 3.3% core PCE price inflation. The most notable product bucket is “Energy Goods and Services” at +15.8% for June after +24.3% in May and +18.3% in April. Goods was +3.7% and Services also +3.7%. “Services ex-Energy and Housing” was +3.8% with Housing at +3.2% as measured by the BEA.

• The 2Q26 inflation data brought uglier metrics. The inflation story has not been as friendly for the curve as the consumer demand trend and price pressure go somewhat hand in hand. The 2Q26 PCE price index reported with GDP was +5.1% (+5.7% for gross domestic purchases) while core PCE for 2Q26 weighed in at +3.4%.

• The annual rates on prices for “gross domestic purchases” (Table 1.6.7 in GDP report) really rang the bell for 2Q26 with 5.7% headline, 5.1% PCE and lines such as +114.6% for “gasoline and other energy goods,” +8.3% on Goods, +5.0% on Durable Goods, +10.1% on Nondurable Goods, +13.1% on “Information processing equipment” (+29.8% on the sub-category of “Computers and Peripheral Equipment”). The headline Equipment category of fixed investment at +5.6%.

The raging bull visual at the top of this commentary may not apply to the consumer, but the theme works given what has been going on in the stock market. The consumer being resilient and fixed investment lines driving a lot of multiplier effects in related goods and services (notably financial services, materials, transports) gets back to the concerns around inflation and the absolute UST rates and steepening risks where higher 10Y and 30Y rates could take a toll (notably on housing and growth stock valuation inputs).

The above chart frames the timeline for “effective fed funds minus Core PCE.” For this latest June measure, we see the differential at +0.3% vs. the long-term median of 1.4%. It is a safe statement that current levels are almost a case of accommodation at a time of inflation peril. If one sees inflation moving higher and demands from the White House to take rates lower, the economics class students could realize there is no need to study (cue Queen singing “nothing really matters”). Fed funds minus the headline PCE price index was negative last month and is now a virtual tossup.

The Warsh wildcard just had its second test with the takeaway being “eloquence without any information.” Warsh brings the intrinsic advantage of running no risk of being right or wrong since he offers no expectations at this point. The combination of his communication policy and the well-recognized Trump pressure to ease was a UST steepening reaction. Such a curve scenario could bring some tech equity valuation damage and hammer housing even more with the 30Y mortgage reaction. The 30Y mortgage rates per Mortgage News Daily peaked last week at over 6.8% but as we go to print is back just under 6.8%.

FedWatch odds of an FOMC easing by the Dec 2026 meeting had essentially been zero but now the odds of no change by Dec 2026 are 17.7%. The latest odds of 1 hike are 45.2%, 2 hikes at 31.0%, and 3 hikes at 6.1%. Those odds will swing around with Iran, oil and inflation readings. The trend has generally been going badly for the easing scenario and Iran events (and now Yemen and Iraq) will remain in flux.

June numbers have been easier on energy than what has since unfolded in July. Refined product pricing has been far more destructive than oil moves even as oil prices tailed off. Diesel gets a lot of airtime for its adverse effects.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (well below the current 3.7% for June after 4.1% in May following 3.5% posted in April). The 2.6% Core PCE median is well below the current 3.3%.

That 4.1% headline PCE for May 2026 eased back to 3.7% in June. That level is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target and potentially going in a bad direction from here subject to oil but also the cyclical demand for labor and wage trends. So far, that wage pressure has been in check.

In the context of 2025-2026, the headline PCE price index was 2.6% in Jan 2025 to start Trump 2.0 before the ensuing moves higher. Iran was the dagger and is flowing into a range of PPI, Goods, and Services lines as the effects reverberate. Oil and downstream effects are pervasive across the economy from operating costs on farms to freight and logistics to petrochemicals and materials costs including metals and mining.

This is a “replay slide” that we use as a reminder on how the 2.0% target inflation rate frames up across the cycles.

We include the 1997-2026 timeline above as it offers a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s. We will see what comes out of the Warsh working groups in their reviews of Fed policy.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% target PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold.

The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including a global dose of sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless and going in the wrong direction. Warsh cites what is to “left of the decimal” (i.e. “2” or “3”). As of now, he is at “3” left of the decimal but only weeks away from it recently being at a “4.” Warsh is leaving himself a lot of room even as he buys time.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.4%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest in this cycle. Households have been hit hard by energy costs (gasoline and electric bills and indirect impact of freight and operating costs rising in just about everything across food, goods and services).

The power demands of data centers are going to keep that energy and power line item in the headlines and notably as data centers get pushback in the states given power needs/costs and environmental effects. Life will get sticky in AI and the related ecosystem if the electricity topic cannot be addressed. The phrase “infrastructure bottlenecks” is getting tossed around a lot. That will impact valuation assumptions and pricing power questions.

With an oil spike and uncertain direction of the Mideast war, the inflation history on the other side of such events is a very bad one. All we need to do is look back at late 1973-1974 (Arab Oil Embargo) and again in 1979 (the original “Iran oil crisis”) on the way into the 1980-1982 double dip. Much of what unfolded after 1979 was closely tied to refined product inventory management. That period crushed many mature manufacturing industries and led to wholesale restructuring alongside wide deregulation. The industrial and services diversity and credit profiles now are much different and much healthier than the Volcker period.

The above time series plots headline CPI vs. PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time. The consumer tends to lock in on affordability and purchasing power – as in the “cash in, cash out” impacts on daily life.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware of the line-item trends by product groupings. Relative weights are also useful to help guide the strategic reaction to headline and core inflation metrics.

Food and Energy (i.e. not “Core”) is crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscores that consumers care about discretionary cash flow and how their take-home pay frames up vs. their household basket. “Derived metrics” used by benchmarks such as CPI often do not match up with their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.). Such metrics matter less to many. They care about the reality of increasing health insurance premiums or loss of health insurance, as well as the financing costs for their big-ticket purchases (e.g. autos, homes, boats, appliances, etc.).

Financing costs also are not captured in CPI metrics for Goods. The best example is monthly car payments and monthly mortgages, and the UST curve is not helping at this point. Despite that reality, autos are doing well and home prices are only gradually starting to feel downward pressure after a big post-COVID spike.

Note:

The following is a recurring commentary we roll forward for new readers and students on the history of the COVID relief and stimulus plans and how that rolled into inflation. Please skip this section if you have read it before. The lies and distortion never go away when talking heads in political circles or related media do their soundbite specials.

The above chart is something of a “replay chart” we include in updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements (aka self-serving lies), material omissions, and conceptually anorexic story telling (like “seller pays the tariffs”).

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month to offer a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

PCE growth vs. DPI…

When PCE growth exceeds DPI growth (or negative DPI), as we often see, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

We have been watching the rate of ACA dropouts and premium increases and shift to higher deductible plans. Health care is a mess and not clearly captured in the headline data. It all adds up to less cash flow at the household level, more borrowing (in some cases), and zero-sum effects on other outlays. Thus any softening PCE numbers in the GDP updates tell a story. We saw trouble in personal consumption in 1Q26 (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). As detailed in 2Q26 GDP and herein, we are seeing a rebound (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26).

The stimulus overload of 2021…

Talking heads in Washington will “play pretend” around what happened in the COVID tunnel of 2020-2021 and what unfolded coming out of that tunnel. That was a lot of structural imbalances and supply-demand dislocations for the economy to absorb.

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022.

Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Bartiromo and Fox. They need the GOP guests to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the COVID vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some supply pressures in the post-Iran period for oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid undermining copper production). Some shortages also undermine military readiness.

Tariffs, unit costs, and pricing decisions…

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. A “peace at all costs” strategy by the EU and USMCA partners has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if other leaders run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. Trump recently fired a shot across the EU’s bow aimed at German autos. Then he frame 50% tariff threats on Canada that will unfold in coming weeks.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Those EU talks are now in jeopardy again. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture (seriously, upholstered furniture)

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump has launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook. He has already been hit with setbacks in court. Trump’s goal is tariff revenue maximization for his discretionary deployment and not economic efficiency.

Trump’s latest gambit uses a Smoot Hawley (1930) provision (Section 338) that allows him to use legislation on the books without consulting Congress. Smoot Hawley is viewed in most circles as one of the most self-destructive pieces of legislation in US history.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income.

We like to include this chart in the PCE updates just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems even at the end of 2025 and into 2026.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The good news from the turmoil of the 2022 tightening cycle and transition into 2023 was that unemployment stayed low, PCE recovered, and a recession was avoided.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through June 2026. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at the table of reconciliation in the monthly PCE release for the granular dollar amounts on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings. PCE had been running ahead of DPI in recent months.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs present a zero-sum game with other consumption lines. The current trends in ACA premium spikes will also be a zero sum “game” for many budgets. Households have shifted to high-deductible plans or even ceased health care coverage entirely to “take their chances.” That is when consumers take on open-ended risk to medical care cost inflation.

This is where the “K recovery” can start to break down and create challenge to PCE growth and consumer credit quality. That has not shown up in the macro numbers on a broader scale at this point even as household budgets and balance sheets are getting stretched.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We see a fresh low in June 2026 of 2.7%. That is the lowest savings rate during the Trump Administration.

The “Why?” of declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on the prices of the household basket, tariffs and financing costs.” That is, some consumers may need to borrow to meet basic bills in the realm of the nondiscretionary.

The savings rate dipped below the 4% line in Oct 2025 and posted 3% handles and edged back above 4% for one month (Jan 2026). That savings rate decline can be a function of various forces, but the inflation trends (health care premiums, gasoline, home heating, and financing costs) and related household cash drain are eating more into real wages and the household bottom line.

See also:

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

Market Commentary: Asset Returns 7-27-26

Yield Curve: Vegas Odds Keep Moving 7-26-26

New Home Sales June 2026: Soft Pricing, Tepid Volumes 7-25-26

Synchrony: Consumer Bellwether Reassures on Quality 7-23-26

Earnings Season Beckons: Homebuilder Stock Returns 7-20-26

Earnings Season Beckons: Comparative Auto Equity Returns 7-20-26

Housing Starts June 2026: 5 Units or More is Not a Crowd 7-19-26

Industrial Production June 2026: Sideways Syndrome 7-18-26

Company Profile: Ford Motor and Ford Motor Credit 7-17-26

Producer Price Index June: Still Hurts…Just Less 7-15-26

CPI June 2026: Eye of the Storm? 7-14-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

• The June Headline PPI number at 5.5% (down from 6.5% in May) for total final demand is still running well ahead of history, but the energy chaos could creep back into the picture in the summer home stretch.

• We break out some of the important line items from a release that certainly contains no shortage of granular line items over too many pages. Notable PPI lines below headline levels include +7.9% for “final demand goods” and 4.6% for “final demand services.” Total intermediate demand for processed goods posted 11.1% with final demand energy down sequentially at -6.4% for May to June still leaving the YoY Energy PPI at +23%.

• There is no hiding from the hydrocarbon chain from gasoline and power to raw materials and basic freight and logistics costs and from goods to services. At some point, the negligible real wages and pressure on costs could flow into wage expectations and adjustments on the payroll side of the ledger (i.e. layoffs).

• Meanwhile, the “Vegas line” over at FedWatch has essentially wiped out the odds of a cut in 2026. The chance of the FOMC acting on 1 cut by the Dec 2026 FOMC meeting (as we go to print) is 0% while the odds of 3 hikes stand at 3.9%. The leaderboard shows 1 hike posting the highest odds at 44.5% followed by “no change” at 29.8% and 2 hikes at 21.6%.

The above time series updates the running PPI line for “Total Final Demand.” The current total of 5.5% is down from 6.5% in May when it was triple the median since 2010. There is no hiding from the reality of Iran as energy costs have so many effects on prices and costs directly or indirectly via secondary and tertiary effects. That will include raw materials across the supplier chains and the pricing pressure at the end of those chains. That includes freight and logistics costs to inventory costs.

To what extent tariffs might flow into goods pricing and services will be influenced by trade partner reactions that must still play out at a lag. Trade partners will need to respond to the latest barrage of tariffs and likely attacks by Trump on US and Mexico. Trump’s threat to cancel the USMCA is among myriad possible decision points that tie more into geopolitical than rational economic decision making. There is a scenario where Trump is at war with Iran and also ends in trade battles with Canada, Mexico and even the EU.

The above table breaks out some of the important PPI metrics that we monitor plus a few smaller line items we like to watch (Construction, Private Capital Equipment). The PPI release provides an extensive and lengthy range of metrics across over 20 pages in the release tables.

Even with improvement, PPI is not pretty…

The YoY column (2^nd column) tells a story of deteriorating inflation trends in 2026. June included some relief when the Trump-Iran deal looked like it had a chance of working (even if badly). The June numbers are progress, but the trend since Iran got underway at the end of Feb 2026 underscores the distinctly negative direction of underlying cost pressures along the chain from PPI to PCE/CPI.

We now have a backdrop where the flow-through of the cost pressures will still lead to higher prices and/or costs at various lag times. In addition, we are now on the cusp of a USMCA tariff meltdown as well. Whether Canada or Mexico will push back is highly uncertain given the tendency of both former NAFTA partners to retreat. High PPI plus more tariffs means either higher prices or narrowing margins.

Market reactions muted…

Protecting margins from PPI pressures or tariffs can bring cost reduction strategies (layoffs, store/plant closings, capex cuts, etc.). That is where the stories need to be researched at the industry and company level based on the cumulative impacts of the energy and materials fallout from fresh rounds of tariffs ahead.

The equity and bond market reaction have been relatively muted in asset returns around these inflation threats as we cover in other commentaries (see Market Commentary: Asset Returns 7-12-26). Duration has been hit, but equities have looked past the Middle East turmoil. Credit spreads in the corporate and HY bond markets have been resilient. The UST even rallied on “PPI day” after last week’s adverse UST moves.

The curve deltas are all higher since Iran and remain higher across the curve YTD as we detail in the asset return recaps. Iran and Trump escalating will not help UST prospects. The 30Y UST hit 5.1% before coming down a bit on the day. That is not a vote of confidence even if the signals are saying “nonevent” in the June inflation numbers. 30Y mortgages had climbed to 6.75% in the Mortgage News Daily survey to start the week but are now back at 6.64%.

See also:

CPI June 2026: Eye of the Storm? 7-14-26

Market Commentary: Asset Returns 7-12-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Happy 250th Birthday America 7-3-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Remembering D-Day: June 6, 1944

The Fall of CBS 6-3-26

• The decline in YoY CPI to 3.5% headline and 2.6% core hitched a ride on the -5.7% MoM in Energy for June that still left Energy YoY at +15.7% and Gasoline at 26.7%. On a positive Energy sector note, Electricity at -1.0% MoM flowed into Electricity YoY at +4.0%.

• The special aggregate indexes (Table 3) offered some relief in June but with “All items less shelter” still at a stubborn 3.7%, “All items less food and shelter” at 3.8%, “Services” (63.3% of CPI) at 3.2%, and “Commodities” at 4.1% even after a -1.1% MoM.

• Our favorite “useless” derived metric is health insurance CPI with its -7.4% deflation reading as many consumers face brutal premium headwinds that have driven some to skip health insurance entirely or shift into high-deductible plans. The methodology for health insurance is disconnected from the consumer “cash out the door” impact.

• Close behind in the derby for least economically relevant CPI metrics for household cash flow reality is auto inflation (new vehicles +0.5% YoY, used vehicles at -1.8%) where affordability is also heavily about the monthly payment and financing costs, which are not part of the CPI equation.

The above time series for headline CPI vs. Core CPI highlights the divergence of the two in this market backdrop with oil prices swinging around wildly with the Iran War (bombing began Feb 28) and related supply disruptions. Trump and his negotiating swat team have been unable to structure and close a deal consistent with his shifting reasons for the war and morphing goals for the bombing. The clash of the fanatical and hateful with the irrational and delusional makes for highly uncertain negotiating dynamics.

The chart shows some of the highs and lows of the post-COVID timeline with the 2.4% CPI Sept 2024 headline level reminding us that treating the Powell legacy with a little more respect might be justified. He and the FOMC were late to move, but 2022 had very strong employment while rolling into 2023-2024 saw solid growth rates in personal consumption – well above current levels (see Unemployment, Recessions, and the Potter Stewart Rule 10-7-22, 4Q23 GDP: Final Cut, Moving Parts 3-28-24).

The US as a “dead country” (to quote Trump) in 2024 also delivered some healthy PCE growth numbers in GDP with inflation moving sharply lower. There is a reason that Bessent, Hassett and the MAGA bobbleheads do not post charts and objective tables and frame them up against Trump’s 2025-2026 (or 2017-2020).

Along the way, we see a lot of strange statements out of Washington on economic performance and gross misstatements that are free of factual support. The trash-talking is worse now than ever in the modern, postwar era, but we always say look for the arguments that do not bring facts and stats. Those are likely parties spinning fake tales. We thought we should update a few factual histories as they relate to GDP, the consumer, and jobs to help sort out some of the falsehoods in the midst of so much political noise:

Trump’s “Greatest Economy in History”: Not Even Close 3-5-25

Gut Checking Trump GDP Record 3-5-25

Payroll % Additions: Carter vs. Trump vs. Biden…just for fun 1-8-25

Annual GDP Growth: Jimmy Carter v. Trump v. Biden…just for fun 1-6-25

The Politics of Objective GDP Numbers: “Flex Facts” on Growth 10-30-24

Presidential GDP Dance Off: Reagan vs. Trump 7-27-24

Presidential GDP Dance Off: Clinton vs. Trump 7-27-24

Employment Across the Presidents 8-15-23

We reproduce these in an inflation piece since, in the end, the inflation risk factor is about how it flows into the economy to impact jobs and consumer spending, undermine capital investments, or drive setbacks in the credit cycle whether at the consumer level in banking and finance, or in debt defaults.

In 2023-2024, the consumer proved resilient. In 2025-2026, the capex cycles have been extremely strong with consumers borrowing to spend more with savings rates dropping. It takes a lot to drive an economic contraction and that has not been close so far. The shakiest part of the macro story in the US for now is the consumer as evident in the weak 1Q26 PCE growth rates.

The above chart plots the historical time series for fed funds vs. headline CPI. The latest headline of 3.5% for June sent CPI back below the 4% threshold after ending 2024 (Biden’s last full month) below the 3% line at 2.9%. The chart includes the long-term medians, which underscore that the current compression of CPI and fed funds is “not normal.”

We reiterate that you can tell the consumer that “core is all that matters” for inflation but just don’t do it while he is filling up his gas tank on the way to the grocery store. The food and energy cost pressures are daily and weekly real cash flow economic events for household budgets. Telling a consumer health insurance CPI is in deflation mode (-7.4%), and that view is likely to be met with a laugh or with pointed profanity when that consumer cancelled his ACA coverage on a 50% premium increase.

Oil prices also will clearly matter to FOMC voters who cut their academic teeth studying the disasters of the 1970s (notably late 1973, 1974, and early 1975) and the 1980-1982 stagflation double dip (Iranian oil crisis in 1979). The common features of Mideast conflict and embargos and supply disruption cannot be ignored.

The most dramatic difference now vs. the stagflation years is that the US is now a record oil producer exporting record volumes at high prices. If oil exports were banned, prices would plunge in the US. That said, Trump knows where his meal ticket is (“big oil”), and the reverberating effects of such an action would be potentially catastrophic for trading partners.

Core CPI (or Core PCE) may be more significant to the debate around inflation (as defined by economists and monetary junkies), but the purchasing power and the relative affordability of the household basket is about real wages and what in that basket may have to change. The recent negative real wage growth or now the negligible real wage growth dovetails with the household cash flow topic.

The above chart frames the fed funds vs. CPI differential. Fed funds minus CPI is now +0.1% after it had turned negative in May at -0.6. vs. the long-term median of +0.6%. In the world of very basic theory, that relationship is more like accommodation.

FOMC odds are dim from here. As we go to print, the Vegas odds (CME FedWatch) show the odds of 1 fed cut by the Dec 2026 FOMC meeting stand at 0% vs. the odds of 1 hike at 42.9%. The odds of “No changes” in fed funds is down to 20.9% while the odds of 2 hikes by Dec 2026 is 28.5%. The probability of 3 hikes is 7.1%.

As we covered in the bullets, the customized CPI benchmarks posted in Table 3 of the BLS release are troubling in historical context even though there was improvement in June 2026. These detailed above are our favorites, but there is a long list worth reviewing.

“All items less shelter” has been our top pick across time as we have cited in prior research since “Shelter CPI” comes with too many asterisks and derived numbers that do not fit the typical household reality (or even close).

The chart shows “Services” still stubborn. It also drives home the stark differential between the Durables CPI trend and the much larger Nondurables line. The ability (or desire) to pass through tariff costs has not hit Durables CPI yet.

The 3.7% for the “All items less shelter” metric in June is better than the 4.7% of May, but it still is a material contrast with the sub-2% levels of 2024 including 1.9% in Dec 2024 (Biden’s last month). In mid-2023, the level was +0.7%. The FOMC was doing its job the right way by then, and the payroll adds of those 2023 days crushed what was posted for June 2026 (see Employment Situation June 2026: Back to a Crawl 7-2-26).

One line that caught our attention in the special aggregates was “Utilities and public transportation” CPI at 4.9% (not shown above) with an 8.1% index weighting. That line was 6.0% in May but it is still running warm. Total transportation CPI in Table 3 was 6.5%.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix of 5 broad categories is the main event even if there are plenty of line items outside this group that matter a lot to consumers.

We will not give much space to our long-held view on the low value of the lines that are derived and inconsistent with the household “checkbook experience” and household cash flow (notably shelter and the steep deflationary number of -7.4% for health insurance).

Some of those lines speak for themselves at a time when such items as ACA premiums have soared and the deductible offerings are shifting the mix in the wrong direction. Too many people have had to drop coverage or see deductibles spike to find “affordable” health care.

The total energy bucket MoM and the YoY metrics are down sharply from 23.5% to 15.7%. Within energy, the gasoline CPI of +26.7% is ugly but beats the 40.5% gasoline CPI of May. With the Strait of Hormuz “shut” again and the dubious “ceasefire” over, the war enters a stage of uncertainty on how long and how damaging.

The higher costs of housing are uglier when including financing and the monthly payment pain even if the CPI metrics do not capture that effect. Mortgages and the cost of financing do not get factored into the product line CPI. The UST curve and mortgages and auto financing are clearly going in the wrong direction in 2025-2026 and are likely to get worse.

With many households crushed by health care premiums (notably the ACA), the consumer is certainly not “feeling the deflation” in health insurance seen in the table. Those that struggle with coverage then get held hostage to the rising costs of services as broken out. The 5.5% for “hospital and related services” is high by any measure with 6.1% for the outpatient subset. In other words, if you lose coverage, that is waiting for you with prices high in absolute terms. Trump’s lack of effort in health care is one of the worst consumer headwinds and notably in the lower part of “the K.”

The above table updates some of the lines near and dear to households. Airline fares at +26.5% in June barely moved from the +26.7% in May and are heavily tied to jet fuel costs. These lines are a mixed picture with divergences across lines within these buckets.

The Apparel CPI eased to 3.9% after 4.8% in May. Trump looked to inflict pain on the low-cost Asian countries, and I am surprised it is not higher. Trump lost on IEEPA and that had heavily targeted Asia. Trump is now using the Section 301 “forced labor” strategy to raise tariffs on essentially all trade partners. Total apparel at 3.9% is down sequentially with the total Footwear line at 4.1%.

As we go to print, WTI is a fraction under $80 and Brent is near $86. WTI had a $68 handle in the first week of July. That was a short reprieve.

See also:

Market Commentary: Asset Returns 7-12-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Market Commentary: Asset Returns 7-5-26

Happy 250th Birthday America 7-3-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

Retail Signal Read Part Deux 6-1-26

• The May 2025 Personal Income and Outlays report shows the consumer still spending with Disposable Personal Income growth (DPI) and Personal Consumption Expenditure growth in balance for the month. The savings rate was down to 3.0% in May and was flat to April (revised from 2.6% to 3.0%). Very low savings rates, high headline inflation, and rising consumer debt paints a picture of a stretched consumer sector.

• The very weak personal consumption expenditure growth reported in the final 1Q26 GDP rolled into some spring relief with the release of the income and outlays data. For the PCE outlays data in May, the current dollar disposable income growth (0.7%) was in balance with the current dollar outlays (+0.7%). Both rose in May from April.

• Getting into the weeds of the PCE price index, the headline of 4.1% and core PCE of 3.4% is closer to neutral or accommodation than restrictive given current fed funds rates. The PCE price index for the quarterly period of 1Q26 as reported in the GDP release this week saw the PCE price index tick slightly higher to +4.6% with the Core PCE price index for the quarter at +4.4%. The current inflation news is bad no matter how you want for forecast the other side of the Iran effects (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

• The MoM real DPI growth for May was +0.7% vs. -0.5% in April. DPI growth is good news for the household but also raises questions on the inflation pressure from the wage side in a market where real wages vs. CPI have been in the red vs. the monthly BLS data (see CPI May 2026: The 4% Rubicon 6-10-26).

• Some highlights of PCE Price Index increases YoY include Energy Goods and Services at +24.3%, Goods at +4.8%, Nondurable Goods at +5.6%, Durable Goods at +3.3% and Services at +3.8%. PCE Services ex energy and housing was +3.9%.

The above chart frames the timeline for “effective fed funds minus Core PCE.” For this latest May measure, we see the differential flat to April +0.3%. The level is well below the long-term median of 1.4%. If one sees inflation moving higher and demands from the White House to take rates lower, the economic class students could start wondering why they bother studying. Fed funds minus the headline PCE price index and CPI are already negative.

The Warsh wildcard has fallen aside quickly given the direction of inflation and fear that his buckling to Trump pressure could do some serious damage in a UST steepening reaction. Such a curve scenario could crush some tech equity valuations and also hammer housing even more in the 30Y mortgage reaction.

FedWatch odds of an FOMC easing by the Dec 2026 meeting has essentially been zero. The latest odds of 1 hike are 41.5% and no changes at 22.4%. We see 2 hikes at 27.5%, 3 hikes at 7.7%, and 4 hikes at 0.8%. Those odds will swing around with Iran, oil and inflation readings. The trend has generally been going badly for the easing scenario.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (well below the current 4.1% after 3.5% posted in April) and the 2.6% Core PCE median (vs. current 3.4%, up slightly from 3.3% in April).

That 4.1% headline PCE for May 2026 is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target and going in a bad direction. In the context of 2025-2026, the headline PCE price index was 2.6% in Jan 2025 to start Trump 2.0 before the ensuing moves higher. Iran was the dagger and is flowing into a range of PPI, Goods, and Services lines as the effects reverberate. Oil and downstream effects are pervasive across the economy.

This is a replay slide that we use as a reminder on how the 2.0% target inflation rate frames up across the cycles.

We include the 1997-2026 timeline above as it offers a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s. We will see what comes out of the Warsh working groups in their reviews of Fed policy.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless and going in the wrong direction. Warsh cites what is to “left of the decimal” (i.e. “2” or “3”). As of now, he is at “4.” Warsh is sure leaving himself a lot of room even as he buys time.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.7%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest in this cycle. Households have been hit hard by energy costs (gasoline and electric bills and indirect impact of freight and operating costs rising in just about everything across food, goods and services).

The power demands of data centers are going to keep that energy and power line item in the headlines and notably as data centers get pushback in the states given power needs/costs and environmental effects. Life will get sticky in AI and the related ecosystem if the electricity topic cannot be addressed. The phrase “infrastructure bottlenecks” is getting tossed around a lot. That will impact valuation assumptions and pricing power questions.

Oil and refined products have joined in at this point, but there seems to be little interest from Team Trump to argue that the 2022 inflation spike was heavily influenced by the Russian invasion of Ukraine. That avoidance (evasion?) of the oil impact in 2022 as a major inflation driver crushes the credibility of the talking heads in the White House (Hassett, Bessent et al.). They can’t let on that Biden is not entirely to blame.

With an oil spike and uncertain direction of the Mideast war/ceasefire, the inflation history on the other side of such events is a very bad one. All we need to do is look back at late 1973-1974 (Arab Oil Embargo) and again in 1979 (The original “Iran oil crisis”) on the way into the 1980-1982 double dip. That crushed many mature manufacturing industries and led to wholesale restructuring alongside wide deregulation.

The above time series plots headline CPI vs PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware of the line-item trends by product groupings. Relative weights are also useful to help guide the strategic reaction to headline and core inflation metrics.

Food and Energy is crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscores that consumers care about household discretionary cash flow and how their take-home pay frames up vs. their household basket. “Derived metrics” in use such as CPI that do not match up with their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.) matter less to many. They care about the reality of increasing health insurance premiums or loss of health insurance, as well as the financing costs for their big-ticket purchases (e.g. autos, homes, boats, appliances etc.). Financing costs are not captured in CPI metrics for Goods.

The above chart is something of a “replay chart” we include in updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements (aka self-serving lies), material omissions, and conceptually anorexic story telling (like “seller pays the tariffs”).

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month to offer a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth (or negative DPI), as we see in April 2026 before leveling off in May, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

We have been watching the rate of ACA dropouts and premium increases and shift to higher deductible plans. Health care is a mess and not clearly captured in the headline data. It all adds up to less cash flow at the household level, more borrowing (in some cases), and zero-sum effects on other outlays. Thus the softening PCE numbers in the GDP updates tell a story (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

The stimulus overload of 2021…

Talking heads in Washington will “play pretend” around what happened in the “COVID tunnel and what unfolded coming out of that tunnel. That was a lot of structural imbalances and supply-demand dislocations.

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022.

Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Bartiromo. They need to GOP to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some now in the post-Iran period for oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid undermining copper production). Some shortages also undermine military readiness.

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. A “peace at all costs” strategy by the EU and USMCA partners has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others leaders run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. Trump recently fired a shot across the EU’s bow aimed at German autos.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Those EU talks are now in jeopardy again. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump has launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook. He has already been hit with setbacks in court. Trump’s goal is tariff revenue maximization for his discretionary deployment and not economic efficiency.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this chart in the PCE updates just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems even at the end of 2025 and into 2026.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through May 2026. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at the table of reconciliation in the monthly PCE release for the granular dollar amounts on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs present a zero-sum game with other consumption lines. As noted earlier, the current ACA premium spikes will also be a zero sum “game” for many budgets. Households have shifted to high-deductible plans or even ceased health care coverage entirely to “take their chances.” That is when consumers take on open-ended risk to medical care cost inflation.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We see a fresh low in May 2026 of 3.0%, flat to April (note: April was revised higher from 2.6% to 3.0%). The 3.0% is well below the April 2025 high of 5.5%.

The “Why?” of declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on the prices of the household basket, tariffs and financing costs.”

The savings rate dipped below the 4% line in Oct 2025 and posted 3% handles and edged back above 4% for one month (Jan 2026). That savings rate decline can be a function of various forces, but the inflation trends (health care premiums, gasoline, home heating, and financing costs) and related household cash drain are eating more into real wages and the household bottom line.

See also:

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

Market Commentary: Asset Returns 6-21-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

Retail Equity Comps: Looking for Signals 5-26-26

Other inflation histories:

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

Inflation: Events ‘R’ Us Timeline 10-6-22

• The hawkish FOMC meeting, SEP report, and Q&A color sent the markets into a mini frenzy with a rapid bear flattener generating a move by late afternoon on the 2Y UST of +14.8 bps, 10Y at +6.1 bps and the 30Y essentially flat (note: those were the deltas by 4:30 pm). The market reaction was immediate with selloffs in equities and bonds. The main event remains the follow-through on the Iran deal now that it is signed and getting to the other side of the misinformation and spin as more details dribble out.

• The FOMC statement took a big dose of GLP-1 on the new Warsh diet (FOMC statement microdosing), but there was no hiding from the hawkish bias toward more hikes by year end. Warsh sat out the dot plot leaving only 18, but the fed funds targets were clear enough. We saw 9 of 18 calling for hikes by year end with 3 seeing 1 hike, 5 seeing 2 hikes, and 1 seeing 3 hikes). That is a bearish set of votes – and that is the group Warsh needs to move (not Trump).

• As we go to print, the “Vegas line” (CME FedWatch) is posting the probability of 1 cut by the Dec 2026 FOMC meeting at 1.4% while the odds of unchanged has declined sharply to only 15.5%. We now see 1 hike odds at 43.1%, 2 hikes at 32.7%, and 3 hikes at 7.3%. The odds of 2 hikes has tripled in a single month. May CPI and PPI did not help the mood (see CPI May 2026: The 4% Rubicon 6-10-26, Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26).

• The market saw solid retail sales today with next week bringing a raft of data points including PCE inflation (Income and Outlays) and the final 1Q26 GDP after a weak 1.6% second estimate with 1.4% PCE growth (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26). The consumer sector appears to be firming on consumption in 2Q26, but savings rates are materially lower and credit card debt is rattling some asset quality nerves (see PCE Inflation: Income and Outlays April 2026 5-28-26).

• The bear flattener pattern as highlighted in the chart will weigh more heavily on retail financing costs (e.g. autos and ABS) and could start to pressure net interest margins if some of the target fed funds rates play out as 9 of the 18 FOMC voters expect. Rising short rates are also a threat to leveraged private credit borrowers.

UST delta reactions to FOMC…

The chart below breaks out the UST delta reaction on the day from the release and press conference through 4:30 pm:

A lot of discussion on the financial cable channels in the aftermath speculated on how the long end could react to the potential actions ahead. One theme was that Warsh had cited mortgage rates, but the threat of a bear steepener from premature dovish actions would have the opposite effect and send the 10Y higher and mortgage rates along with it.

Another theory is that Warsh is buying time until the follow-through on Iran can give him some room to maneuver. He did not want to shoot his credibility in the foot so early sounding too dovish. He can get more input back from his working groups to review the range of topics in the fall. Who will be on those committees and what disclosure they will provide is unclear (on a not too serious note, maybe they can put Bill Pulte in there since he is a “mortgage expert” and he will do less harm when Warsh ignores him).

The summary of economic projections…

Below we summarize some of the color from the various projections as the committee handicapped key economic metrics. We summarize the SEP details across the fed funds target range, PCE inflation (headline and core), GDP growth, and unemployment rates.

• GDP growth: the median for 2026 was notched down to 2.2% from the 2.4% in March. The capex boom has been running high alongside weak PCE growth (1.4% in 1Q26) (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26). The forecasts show low 2% range in 2027 and 2028. Those are not “golden age” numbers.

• Unemployment rate: the median forecast was 4.3%, down from 4.4% in the March forecast. While Warsh reiterated with forceful emphasis that price stability was the overriding focus in the dual mandate, that is easier when the jobs numbers signal what would be full employment across most cycles – even if that comes with some “quality of mix” asterisks (see Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26).

• Headline PCE inflation: The 2026 headline PCE inflation expectation is for 3.6% vs. 2.7% in the March forecast. The Iran fallout has really rattled the inflation meter with the downstream effects and real wage pressures raising numerous, obvious issues. If Warsh used the word “tariff” in his press conference, I did not hear it. He is working on his dance steps with Trump.

• Core PCE inflation: The median of 3.3% is up from 2.7% in March. The tricky item in an oil spike backdrop is that the classic definition of “inflation” by economists (i.e. recurring price increases) departs from the consumer worries around immediate “affordability” now and the purchasing power erosion for any given household basket. The convenient escape hatch of “one time” increases (e.g. tariffs) does not change the fact that the consumer is underwater and needs to adjust their “basket” or simply cannot afford it. Those are moments that affect behavior as they need to adjust habits or demand a raise (or leave a job for a raise that can in turn set off wage multiplier effects). When household cash flow is hit at the gas pump, in the power/electricity bill, or in the aisles as higher freight charges also run into food/beverage prices, “core” is not the main event for them. It is purchasing power and the need to start drawing on credit cards.

• Fed funds target: The median was 3.8% vs. 3.4% in March. That implies a single hike. That is where the highest odds are now in FedWatch, but the 2 hike odds are not far behind. The 2027 and 2028 medians of 3.1% will require those 2% handle PCE inflation estimates in 2027-2028 or there is a risk of near zero or negative real fed funds.

See also:

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Market Commentary: Asset Returns 6-14-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

• PPI provides useful leading indicator metrics for PCE and CPI trends ahead, so the May PPI results are bad news unless some major progress is made in energy this summer with an Iran deal that is real.

• Lag times from the underlying PPI cost pressures as well as event risk complicate the potential range of outcomes in the days ahead with more tariffs rolling in and Iran and Trump apparently back in a more violent exchange of “ceasefire actions.”

• The total Final Demand index of +6.5% was the highest since +7.4% in Nov 2022. Final demand “less food, energy, and trade services” MoM at +0.8% was the highest since March 2022 at 0.9%. The YoY metric for the same index was +5.1% or the highest since Oct 2022 (5.5%). Bottom line: that is too many 2022 comps except PCE growth and monthly payroll additions, which were higher in 2022 than 2026.

• The “Final Demand Goods” metrics were especially grim with the +2.8% MoM in May, which was the highest since it was first computed back in Dec 2009. The 12-month rate was +10.4%. The +36.6% rate for “Final Demand Energy” was (as all expected) a major culprit. “Final demand goods less foods and energy” was a less daunting +5.1%.

The above time series updates the running PPI line for “Total Final Demand.” The current 6.5% for May is triple the median since 2010 but the real test lies ahead with the questions of where energy markets could take this number. That wholesale effect will include raw materials across the supplier chains, and the pricing pressure at the end of those chains including impacts from freight and logistics costs to inventory costs.

To what extent tariffs might flow into goods pricing and services is also something that must still play out at a lag. Whether trade partners will respond to the latest barrage of tariffs or the US and Mexico will need to react to Trump’s threat to cancel the USMCA is among myriad possible decision points that tie more into geopolitical than rational economic decision making.

One thing is clear, and that is the reality there are no bragging rights in the PPI numbers even on a core basis. The same was true for CPI (see CPI May 2026: The 4% Rubicon 6-10-26).

The above table breaks out some of the important PPI metrics that we monitor plus a few smaller line items we like to watch (Construction, Private Capital Equipment). The PPI provides a stunning and lengthy range of metrics across over 20 pages in the release tables.

The YoY column tells a story of deteriorating inflation trends. Total PPI Final Demand has again delivered 6% handle numbers with 6.5% for May. The trend underscores the distinctly negative direction of underlying cost pressures along the chain from PPI to PCE/CPI.

We now have a backdrop where the flow-through of the above cost pressures will lead to higher costs and this means either higher prices or narrowing margins. Protecting margins from PPI pressures or tariffs can also bring cost reductions (layoffs, store/plant closings, capex cuts, etc.). That is where the stories need to be researched at the industry and company level.

The equity and bond market reaction have been relatively muted in returns around these inflation threats as we cover in other commentaries (see Market Commentary: Asset Returns 6-8-26). The UST has been climbing over the trailing month and YTD as we detail in the asset return recaps. Iran and Trump escalating will not help UST prospects.

The “Vegas line” over at FedWatch has essentially wiped out the odds of a cut in 2026. The chance of the FOMC acting on 1 cut by the Dec 2026 FOMC meeting as we go to print is 0.5% while the odds of 3 hikes is at 4.6%. That is not pretty. The leaderboard shows 1 hike posting the highest odds at 43.3% followed by “no change” at 28.9% and 2 hikes at 22.4%.

Warsh is in for a ride. Trump may need plastic bottles for the ketchup.

See also:

CPI May 2026: The 4% Rubicon 6-10-26

Market Commentary: Asset Returns 6-8-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 5-31-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

• Headline CPI of +4.2% gets us into a new zone while Core at 2.9% is still not “core” to what is causing consumer headaches at the pump and in the aisles. Meats at 7.6% include beef and veal at 12.9% and fish and seafood at 6.5% while fresh vegetables weighed in at 11.9%. Coffee CPI was 17.5%. If you want to die young and smoke with that coffee, cigarettes are at 8.7% (I was on a long EU road show with the CFO of Philip Morris once in the 90s, and I think that shaved 5 years).

• To quote Trump on Meet the Press: “Prices are down on groceries.” Not really… unless you are on an all-cheese diet (-6.0% for cheese) and drink tap water. Just scan the YoY column in Table 2. Then again, you use gas in the tank driving to the store and disposal/waste services costs are rising. So is the gas or electricity from the stove if you want that cheese grilled since utility costs are rising (also for the tap water). If the high cholesterol diet from the cheese and stress from caffeine withdrawal kills you, at least funeral CPI only rose 3.4%. The multiplier effect is alive and well.

• In other household joy moments, Apparel is now at 4.8% and Footwear at +5.2% with the latest round of Section 301 trade actions unlikely to offer relief. Under “Recreation services” we are seeing some sharp moves in subscription and rental quietly sneaking up 14.2% YoY and 6.1% for the broader bucket. Music subscriptions were +7.2%. For some basic items, we see such items as “water and sewage services” at +4.7%, dental services at 8.5%, pet services at 7.0%, postage and delivery 14.7%. This can be framed at the household level where real wage growth is now underwater.

• Looking at some special aggregate indexes, we see 4.7% for “All items less shelter” to go with 4.4% for “All items less food” and 5.2% for “All items less food and shelter.” Other adjusted lines such as Commodities at +5.5% and “Commodities less food” at 7.0% will get some attention (except from Hassett or Bessent).

• Nondurables at 8.0% CPI have a CPI index weighting of 2.5x Durables with its -0.1% CPI. That low Durables CPI raises questions around the ability of many subsectors and industries to offset tariffs with the USMCA about to see a fresh round of upheaval. As we go to print, Trump has indicated he will not renew the USMCA. That is a very big topic for another day.

• Services at almost 2/3 the CPI index is stubborn at 3.5% with some notable lines including Hospital Services at +5.7% and Electricity at 5.9% in the “Energy Services” bucket. Financial services have posted a sharp rise the past two months and now stand at 6.8%.

• The Iran “ceasefire” is seeing more military action (as “ceasefires” go), with just the past few days swinging from an imminent deal yesterday to Iran will “pay the price” for delay overnight. That could mean hikes on the short end of the UST curve in 2026 and higher long rates regardless of the Fed.

The above chart plots the historical time series for fed funds vs. headline CPI, and the headline CPI keeps moving higher and crossed the 4% threshhold after ending 2024 below the 3% line. We also include the long-term medians, which underscores that this is “not normal.” We reiterate that you can tell the consumer that “core is all that matters” for inflation but just don’t do it while he is filling up his gas tank on the way to the grocery store.

Oil prices also will clearly matter to FOMC voters who cut their academic teeth studying the disaster of the 1970s (notably 1974-1975) and the 1980-1982 stagflation double dip (Iranian oil crisis in 1979). The common features of Mideast conflict and embargos and supply disruption cannot be ignored. The most dramatic difference is that the US is now a record oil producer exporting record volumes at high prices. If oil exports were banned, prices would plunge in the US. That said, Trump knows where is meal ticket is.

“Core” CPI (or PCE) may be more significant to the debate around inflation (as defined by economists and monetary junkies), but the purchasing power and the relative affordability of the household basket is about real wages and what in that basket may have to change. The negative real wage growth and household cash flow strain is a topic you cannot hide from. Something has to give on Iran or in wages if this keeps up with higher financing costs also a reality in monthly payment stress (durables funding and mortgages). Household cash flow dilution has already taken savings rates back to 2Q22 levels (see PCE Inflation: Income and Outlays April 2026 5-28-26).

The above chart frames fed funds vs. CPI. It is now negative at -0.6. vs. the long term median of +0.6%. In the world of very basic theory, that is accommodation. So, the walk from here to an easing policy will need more than trimmed CPI. That would require more than a trim but would need a chainsaw to remove economic reality and abandon the household sea level experience.

As we go to print, the Vegas odds (CME FedWatch) show the odds of 1 fed cut by the Dec 2026 FOMC meeting stands at 1.2% vs. the odds of 1 hike at 42.5%. The odds of “No changes” in fed funds is 32.3%. That “unchanged” probability is lower than the 1 hike odds. The odds of 2 hikes by Dec 2026 is 19.9% while the probability of 3 hikes at 3.8% is higher odds than 1 cut at 1.2%.

The above time series for headline CPI vs. Core CPI highlights the divergence of the two in this market backdrop. We see some of the highs and lows of the post-COVID timeline with the 2.4% Sept 2024 headline level that should call for treating the Powell legacy with a little more respect rather than giving him (and the collective FOMC) the electric chair (which now costs much more to operate).

We don’t see Trump, Hassett, or Bessent using such images in their sales pitches. They sure would not post them. After all, facts make noise while the theme music is playing. The idea of CNBC delivering a tough factual follow-up question like “Is inflation higher or lower than late 2024?) would make guests mad and be less likely to come back on. The constant focus on June 2022 by Trump and team takes away from the reality of the starting point of Jan 2025.

As we covered in the bullets, the customized CPI benchmarks posted in Table 3 of the BLS release are troubling in historical context. These detailed above are our favorites, but there is a long list worth reviewing. All items less shelter has been our top pick across time as we have cited in prior research since “Shelter CPI” comes with too many asterisks and derived numbers that do not fit the typical household reality (or even close).

The chart shows “Services” still stubborn. It also drives home the stark differential between the Durables CPI trend and the much larger Nondurables line. The ability (or desire) to pass through tariff costs has not hit Durables CPI yet.

The 4.7% for this “ex-shelter” metric in May is a material contrast with the sub-2% levels of 2024 including 1.9% in Dec 2024 (Biden’s last month). In mid-2023 the level was +0.7%. The FOMC was doing its job the right way by then, and the payroll adds of those 2023 days crushed what was posted on Friday (see Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26). Friday’s payroll additions were only around the median posted since the start of 2009. It was only very strong compared to the weak 2025 numbers.

One line that caught our attention this month in the special aggregates was “Utilities and public transportation” CPI at 6.0% (not shown above) along a CPI line with an 8.0% CPI index weighting. Total transportation CPI in Table 3 was 9.3%, which includes “private” transportation CPI of 8.6%.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix of 5 broad categories is the main event even if there are plenty of line items outside this group that matter a lot to consumers.

We will not give much space to our long-held view on the low value of the lines that are derived and inconsistent with the household “checkbook experience” and household cash flow (notably shelter and the steep deflationary number of -6.4% for health insurance). Some of those lines speak for themselves at a time when such items as ACA premiums have soared and the deductibles offering are shifting the mix in the wrong direction. Too many people have had to drop coverage or see deductibles spike to find “affordable” health care.

The energy and food at home buckets show adverse moves. The higher costs of housing is also ugly when including financing and the monthly payment pain even if the CPI metrics do not capture that. Mortgages and the cost of financing do not get factored in the product line CPI and mortgages and auto financing are clearly going in the wrong direction.

With many households crushed by health care premiums (notably the ACA), the consumer is certainly not “feeling the deflation” in health insurance seen in the table. Those that struggle with coverage then get held hostage to the rising costs of services as broken out. The 5.5% for “hospital and related services” rose by +0.7% MoM and is high by any measure with 6.4% for the outpatient subset.

The above table updates some of the lines near and dear to households. Airline fares are heavily tied to jet fuel costs and that gets back to the K recovery debate on who can eat those price increases. These lines are a mixed picture with divergences across lines within these buckets.

The Apparel CPI is starting to look more rational relative to the pain Trump looked to inflict on the low-cost Asian countries. He lost on IEEPA and is now using the Section 301 “forced labor” strategy to raise tariffs (10%, 12.5%) on essentially all trade partners. Total apparel at 4.8% included 4.1% on Women’s and Girls Apparel but with the total Footwear line at 5.2% (Women’s Footwear at 6.2%). Jewelry CPI was 21.4%.

See also:

Market Commentary: Asset Returns 6-8-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 5-31-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

Taiwan: Stakes are High, US Awareness is Low 5-17-26

Industrial Production April 2026: Bringing a Lift 5-15-26

Existing Home Sales April 2026: Steady or Clinging? 5-14-26

Producer Price Index April 2026: Heat Rising on Cost Inputs 5-13-26

• Real fed funds with fed funds net of core PCE is very compressed vs. history you with inflation rising. The “Warsh Watch” will be trying to gauge how he addresses the Iran effects in tone or in specific policy. The new Fed head will need to walk some Trumpian hot coals, and he needs to convince the FOMC voters.

• The +3.8% headline PCE and core PCE of 3.3% is well ahead of target but not in a 2022 red zone without a lot more damage from Iran fallout. The sequential MoM rate declined for both headline (+0.7% to +0.4%) and core (+0.3% to +0.2%). Energy Goods and Services were high MoM (+3.9%) but materially lower than the March Iran shock of +11.6%.

• For YoY PCE price trends, the +3.8% in April is up from +3.5% in March while core PCE inflation ticked higher to +3.3% from +3.2% in March. “Energy Goods & Services” PCE prices rose to +18.3% after +14.4% in March. That is a spike from -0.2% in Feb and -0.9% in Jan 2026. Housing was muted in the low 3% during 2026 with +3.2% in the +3.0% to +3.2% range we have seen since Jan 2026.

• The personal income and consumption story for April 2026 saw MoM “Current Dollar Disposable Income” slightly negative at -0.1% with “real DPI” at -0.5% in April, down from -0.2%. Meanwhile, “current dollar PCE” MoM was +0.5% vs. real PCE MoM at +0.1%. Those relationships of DPI vs. PCE flag why savings rates plunged to 2.6% or the lowest since the months of 2Q22 during the inflation peak.

The above chart frames the timeline for “effective fed funds minus Core PCE.” For this latest date posted, we are down to +0.3% with a slight reduction MoM. The level is well below the long-term median of 1.4%. If one sees inflation moving higher and demands from the White House to take rates lower, the economics class students could start wondering why they bother studying.

The FedWatch odds of an FOMC easing by the Dec 2026 meeting are zero as we go to print. The odds of 1 hike are 37.8% and no changes at 51.9% and 2 hikes at 9.4%. Those odds will swing around with Iran, oil and inflation readings.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 3.5%) and the 2.6% Core PCE median (vs. current 3.3%). That 3.8% headline PCE for April 2026 is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target and going in the wrong direction. In the context of 2025-2026, the headline PCE price index was 2.6% in Jan 2025 to start Trump 2.0 before dipping down to 2.3% in April 2026.

This is a replay slide we use as a reminder on how the 2.0% target inflation rate frames up across the cycles.

We include the 1997-2026 timeline above as it offers a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless and going in the wrong direction.

With an oil spike and Mideast war, the inflation history is a very bad one looking at late 1973-1974 and again in 1979 (The original ‘Iran oil crisis”) on the way into the 1980-1982 double dip.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.5%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest in this cycle.

The power demands of data centers are going to keep that line item in the headlines and notably as data centers get pushback in the states given power costs and environmental effects. Life will get sticky in AI and the related ecosystem if the electricity topic cannot be addressed.

Oil and refined products have joined in at this point, but there seems to be little interest from team Trump to argue that the 2022 inflation spike was heavily influenced by the Russian invasion of Ukraine. That evasion of the oil impact in 2022 as a major inflation driver crushes the credibility of the talking heads in the White House (Hassett, Bessent et al.). They can’t let on that Biden is not entirely to blame.

The above time series plots headline CPI vs PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware of the line-item trends by product groupings, and relative weights are also useful to help guide the strategic reaction to headline and core inflation metrics.

Food and Energy is crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscore that consumers care about household discretionary cash flow and how their take-home pay frames up vs. their household basket. “Derived metrics” that do not match up with their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.) matter less to many versus their increasing health insurance premiums and financing costs for their major big-ticket purchases (e.g. autos).

The above chart is something of a “replay chart” we include in updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements aka (self-serving lies), material omissions, and conceptually anorexic story telling (like “seller pays the tariffs”).

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month for a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth (or negative DPI), as we see in April 2026, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

We have been watching the rate of ACA dropouts and premium increases and shift to higher deductible plans. Health care is a mess and note clearly captured in the headline data. Ite all adds up to less cash flow at the household level, more borrowing (in some cases), and zero sum effects on other outlays.

The stimulus overload of 2021…

Talking heads in Washington will “play pretend” around what happened in the “COVID tunnel and what unfolded coming out of that tunnel. That was a lot of structural imbalances and supply-demand dislocations.

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022.

Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Bartiromo. They need to GOP to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some now in oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid undermining copper production). Some shortages also undermine military readiness.

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. A “peace at all costs” strategy by the EU and USMCA partners has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. Trump recently fired a shot across the EU’s bow aimed at German autos.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Those EU talks are now in jeopardy again. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump is launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook. He has already been hit with setbacks in court.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this chart in the PCE updates just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems even at the end of 2025 and into 2026.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through March 2026 (we dropped 2019 from the table to avoid crowding). It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or other health care premiums under ACA. There is also the recurring pressure expected on durable goods that face tariffs.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. As noted earlier, the current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We see a fresh low in April 2026 of 2.6% or well below the April 2025 high of 5.5%.

The “Why?” of declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on prices of the household basket, tariffs and financing costs.” The saving rate dipped below the 4% line in Oct 2025 and posted 3% handles and edged back above 4% in one month (Jan 2026). That savings rate decline can be a function of various forces, but the inflation trends (health care premiums, gasoline, home heating, and financing costs) and related household cash drain are eating more into real wages and the household bottom line.

See also:

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Market Commentary: Asset Returns 5-26-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

Taiwan: Stakes are High, US Awareness is Low 5-17-26

Industrial Production April 2026: Bringing a Lift 5-15-26

Existing Home Sales April 2026: Steady or Clinging? 5-14-26

Producer Price Index April 2026: Heat Rising on Cost Inputs 5-13-26

CPI April 2026: 4.1% All Items Less Shelter, 30Y UST 5% 5-12-26

Employment Situation: April 2026 5-8-26

New Home Sales March 2026: Favorable Volume, Weaker Prices 5-5-26

JOLTS March 2026: Openings Down, Hires Up, Layoffs/Discharges Up 5-5-26

1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26

Synchrony Financial: Favorable Consumer Credit Signals 4-24-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

• The cost inputs for producer pricing strategies are starting to flow into goods and services in a bigger way even if at a lag that will keep playing out subject to Iran War fallout, tariff effects, and labor expectations as “real wages” take a pummeling on rising CPI and PCE (see CPI April 2026: 4.1% All Items Less Shelter, 30Y UST 5% 5-12-26, PCE Inflation, Income & Outlays March 2026: Inflation Anxiety Level? 5-3-26).

• The sharp upward moves along many PPI lines – especially since March – tell a story of either higher prices ahead or eroding profit margins unless the “magic pill” of AI can offset the effects (see Producer Price Index March 2026: Heater or Curve Ball? 4-14-26). April PPI posted the kind of moves you cannot dance around. The UST curve action has been restrained, but FedWatch odds have shifted notably against easing of late with “hike odds” rising. “No change” is still the heavy favorite in calendar 2026.

• Whether you believe PPI is a reliable leading indicator or not, the logic of inflationary pressures ahead in goods and services shown in CPI/PCE metrics is a well-traveled conceptual path. The MoM move of +1.4% is double March while the 6.0% YoY is up from +4.3% (revised) in March.

• The +1.4% increase in Final Demand was the highest since March 2022 and the 1.2% increase in Final Demand Services MoM was the highest since March 2022. Any time the comparisons are made to 2022, it is a bad thing. Then again, personal consumption and payrolls were strong in 2022 and a recession was avoided. The tests are still in the consumer sector, corporate earnings, and hiring (see Employment Situation: April 2026 5-8-26, JOLTS March 2026: Openings Down, Hires Up, Layoffs/Discharges Up 5-5-26).

The time series above posts the PPI index level for Final Demand, and April is running at 6.0% or 3x the long-term median. That can only be seen as a negative. The theory is that will flow into PCE inflation levels and will send Warsh to the local hardware store for a high volume “mean trimmer” as the FOMC plot thickens. Changing the data strategy will not change the prices of goods and services.

The chart shows a PPI rise to 3.8% in January 2025 with a dip that followed before the inexorable rise into 2026. The move to 6.0% YoY in April from 4.3% (revised) in March, 3.4% in February, and 3.1% (revised) in January sure looks like a trend. That rise is not to be taken lightly. The market was looking at 2% handles in 2Q25.

The 6.0% YoY level is the highest since Dec 2022. Some will lay off April PPI on energy, but there is no shortage of line items outside energy in the data-intensive PPI release signaling setbacks. Final Demand Core PPI of 5.2% is up from the 3.8% reported in March.

The above table breaks out some of the important metrics in PPI we monitor plus a few smaller line items we like to watch (Construction, Private Capital Equipment). The YoY column tells a story of inflationary trends and the March to April numbers are on balance moving in a distinctly negative direction.

The equity and bond market reaction was relatively muted, but the 2Y UST has been climbing over the trailing month and 6M period. That said, the 2Y UST is 3.99% today as we post vs. a 3.99% open. The 10Y at 4.48% as we go to print is a minimal move from the 4.47% open. In contrast, the “Vegas line” over at FedWatch seems to be wiping out odds of a cut in 2026. Those probabilities are essentially telling Warsh to “brace for impact” (Truth Social impact that is).

The FedWatch odds of a cut by the Dec FOMC meeting is now down to 1% with a 64% chance of unchanged fed funds by then and a 30% chance of 1 hike. The odds of a hike were less than 1% a month ago. Looking out to the next April (2027) FOMC meeting, the odds of unchanged by then is 42%, 1 hike is 39%, and 2 hikes is 15%. The odds of 1 cut at a 325-350 bps range is less than 1%.

For today, the fact that the Strait of Hormuz remains closed and negotiations are stalled with Trump in China (and seemingly detached from hopes of Iran progress) has not helped those odds. The PPI trend lines remind us that energy costs, tariffs, and producer pressures to protect margins will flow into inflation unless demand takes a major hit. The 1Q26 earnings season did not signal broad weakness in the economy and payrolls have been steadier. That means pricing power is still there for many as producers face tariffs (in whatever form they end up taking) and the Iran cost effects get felt directly and indirectly in the economy.

See also:

CPI April 2026: 4.1% All Items Less Shelter, 30Y UST 5% 5-12-26

Market Commentary: Asset Returns 5-10-26

Employment Situation: April 2026 5-8-26

New Home Sales March 2026: Favorable Volume, Weaker Prices 5-5-26

JOLTS March 2026: Openings Down, Hires Up, Layoffs/Discharges Up 5-5-26

PCE Inflation, Income & Outlays March 2026: Inflation Anxiety Level? 5-3-26

1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26

Synchrony Financial: Favorable Consumer Credit Signals 4-24-26

Industrial Production March 2026: Mixed Picture, Big Questions Ahead 4-16-26

Existing Home Sales March 2026: New Beginnings or New Ends? 4-15-26

Producer Price Index March 2026: Heater or Curve Ball? 4-14-26

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

UST Deltas: Elevation Realities 3-29-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

· Headline CPI at 3.8% and Core CPI at 2.8% remain well below 2022 but will complicate Warsh’s sales pitch to the FOMC. Warsh probably cannot “trim those means” in PCE fast enough to help his case to ease. In the meantime, energy costs will be flowing into operating costs and raw materials while eating into discretionary consumer household cash flow and confidence.

• The rise in the “All item less shelter” CPI to 4.1% vs. 1.9% in Dec 2024 (Biden’s last month) is an eye opener with Services CPI still sticky and Energy CPI lines spiking. We see more upward pressure on “Food at home” as YoY levels rose MoM by more than a point to 2.9%.

• Even if the 17.9% CPI for Energy total and 28.4% for gasoline steals the headlines, that stubborn and steady electricity inflation at 6.1% is one that is going to be hard to shake and is not directly tied to the Strait of Hormuz (even if Hormuz seems to tie into almost everything these days).

• There is always a desire to want to dramatize higher interest rates and inflation despite the fact that 2022 did not even bring a recession under Biden and the UST curve we see today is dwarfed by the early 1980s. That does not change the fact that both are bad news right now, and the impact on the consumer and economics of valuing projects could also flow into the valuation of growth equities.

• One angle for the half-full crowd is that pricing power can be good for equities even if bad for bonds as long as there is confidence that US-Iran and the strait will get resolved sooner rather than later. Trump stating that he did not even read the whole Iran proposal fails to inspire confidence even if it reminds us why he closely protects his education transcripts (reading helps).

• The Iran-US gap on terms and current vacuum leaves a lot of room for dire scenarios if the Strait stays closed into the early summer and peak driving season kicks into gear. There is also the risk of Congressional action to curb exports of refined products to relieve the US consumer, which in turn would be a disaster for some trading partners.

The above chart plots the historical time series for fed funds vs. headline CPI, and the headline CPI just moved higher. We also include the long-term medians, which underscores that this is “not normal.” You can tell the consumer that “core is all that matters” but just don’t do it while he is filling up his gas tank on the way to the grocery store.

“Core” (or PCE more than CPI) may be more significant to the debate around inflation (as defined by economists and monetary junkies), but the purchasing power and the relative affordability of the household basket is about real wages and what in that basket may have to change.

The above time series for headline CPI vs. Core highlights the divergence of the two in this market backdrop. We see some of the highs and lows of the post-COVID timeline with 2.4% Sept 2024 headline level that should call for treating Powell with a little more respect rather than giving him (and the collective FOMC) the electric chair (which now costs much more to operate).

The above table updates some of our favorite special aggregate CPI indexes. While we see some good news from durables this month, the nondurables line is closer to 7% than 6%. Services remain sticky in the 3% range but are now trending higher again after a period of moving lower.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix is the main event. We will not replay our reluctance to embrace some of the lines that are derived and not consistent with the household checkbook experience” (notably shelter and the deflationary health insurance) but the lines speak for themselves.

The energy and food buckets are the clear adverse moves and the higher costs of housing (when including financing and the monthly payment pain). With many households crushed by health care premiums (notably ACA), they are not “feeling the deflation” in health insurance seen in the chart. Those that struggle with coverage then get held hostage to the rising costs of services as broken out. The 5.5% for “hospital and related services” is not rising but it is high.

The above table breaks out some product lines near and dear to households. We see 4 of 6 higher in April and 2 flat to March. Recreation Services have moderated from the higher levels seen over the recent cycle. That is “good news, bad news” since it might also imply a softening of the consumer sector. Driving or flying to the destination certainly costs more now. Apparel might get some more relief from the arbitrary tariffs slapped on low cost “labor arb” countries that dominate apparel.

See also:

Market Commentary: Asset Returns 5-10-26

Employment Situation: April 2026 5-8-26

New Home Sales March 2026: Favorable Volume, Weaker Prices 5-5-26

JOLTS March 2026: Openings Down, Hires Up, Layoffs/Discharges Up 5-5-26

PCE Inflation, Income & Outlays March 2026: Inflation Anxiety Level? 5-3-26

1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26

Synchrony Financial: Favorable Consumer Credit Signals 4-24-26

Industrial Production March 2026: Mixed Picture, Big Questions Ahead 4-16-26

Existing Home Sales March 2026: New Beginnings or New Ends? 4-15-26

Producer Price Index March 2026: Heater or Curve Ball? 4-14-26

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

UST Deltas: Elevation Realities 3-29-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

• The month of April printed equity returns not seen for a single month since 2020, but the inflation creep and lack of clear timelines for the Strait of Hormuz and energy cost relief is building the case for even more macro trouble. This coming week brings payroll numbers with CPI and PPI the following week. The reaction of the EU to auto tariff escalation by Trump raise trade risks and the same applies to USMCA talks ahead.

• We update our Personal Income and Outlays chart set below. The inflation histories highlight how price pressure looms higher than any period since 2022-2023 and the Dec 2024 2.9% CPI. PCE and CPI are now both back above long-term medians. The spring 2022 oil price spike fueled by the Russian invasion of Ukraine still does not get raised as a contributor to the 2022 inflation experience by Team Trump. That might raise questions of cause and effect that apply in coming months.

• The real fed funds level (using whatever inflation you want to net against fed funds) is heading in the direction of Trump’s wish list of negative real fed funds. That would comprise closet stimulus after a 1Q26 where 4% handle PCE inflation lines arrived with the month of March PCE inflation in the 3% handle zone (see 1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26).

• Equity markets have continued to rock in April despite inflation and Iran. We looked at asset returns for the month of April in separate LinkedIn posts. We will update the full asset return charts later.

• The policy level chaos is only getting worse on the geopolitical front and domestic DOJ insanity. While it has taken Epstein out of the headlines and handed a set of ugly inflation metrics a back seat for now in equity markets and credit risk pricing, the lack of a clear action plan just keeps the global supplier chain fuse burning (see The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26).

The arrival of Warsh this month will make for some interesting balancing acts between monetary policy and inflation metrics. We can understand why he would rather not do press conferences (avoid direct questions) and also wants to change the data reporting strategy. The PCE metrics just came out with the GDP report for 1Q26 and for the month of March this past week. Those releases and data are making for challenging math for real fed funds.

The above chart frames the timeline for “effective fed funds minus Core PCE.” For this latest date posted, we are down to +0.4%. The level is well below the long-term median of 1.4%.If one sees inflation moving higher and demands from the White House to take rates lower, the economics class students could start wondering why they bother studying.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 3.5%) and the 2.6% Core PCE median (vs. current 3.2%). That 3.5% headline PCE for March is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target and going in the wrong direction.

We include the 1997-2026 timeline above for a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless and going in the wrong direction.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.3%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest. Oil has joined in at this point, but there seems to be little interest from team Trump to argue that the 2022 inflation spike was heavily influenced by the Russian invasion of Ukraine. That evasion of the oil impact in 2022 crushes the credibility of the talking heads in the White House (Hassett, Bessent et al.).

The above time series plots headline CPI vs PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware if the line item trends by product groupings, and relative weights are also useful to help guide the strategic reaction headline and core inflation metrics.

Food and Energy is crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscore that consumers care about household discretionary cash flow and how their take-home pay frames up vs. their household basket. Derived metrics that do not match up their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.) matter less to many as their premiums go up and financing costs are higher for their major big-ticket purchases (e.g. autos).

The above chart is something we frequently include in updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements (self-serving lies), material omissions, and conceptually anorexic story telling (like “seller pays the tariffs”)

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month for a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth, as we see again in March 2026, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

The stimulus overload of 2021…

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022. Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Bartiromo. They need to GOP to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some now in oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid). Some shortages also undermine military readiness.

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. A “peace at all costs” strategy by the EU and USMCA partners has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. Trump also just fired a shot across the EU’s bow aimed at German autos.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Those EU talks are now in jeopardy again. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump is launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this chart and the prior chart just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems even at the end of 2025 and into 2026.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through March 2026 (we dropped 2019 from the chart given chart crowding). It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or other health care premiums under ACA. There is also the recurring pressure on select durable goods that face tariffs.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. The current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We see a fresh low in March 2026 of 3.6% or well below the April 2025 high of 5.5%.

The “Why?” of declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on prices of the household basket, tariffs and financing costs.” The saving rate dipped below the 4% line in Dec 2025 and posted 3% handles in 3 of the past 4 months. That savings rate decline can be a function of various forces, but the inflation trends are eating more into wages.

See also:

1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26

Market Commentary: Asset Returns 4-26-26

Synchrony Financial: Favorable Consumer Credit Signals 4-24-26

Industrial Production March 2026: Mixed Picture, Big Questions Ahead 4-16-26

Existing Home Sales March 2026: New Beginnings or New Ends? 4-15-26

Producer Price Index March 2026: Heater or Curve Ball? 4-14-26

CPI March 2026: The CPI Cycle Could Prove Maddening 4-12-26

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

Employment Situation March 2026 4-4-26

Payroll Focus: ADP Highlights March 2026 4-1-26

JOLTS Feb 2026: Openings Down, Hires Down, Layoffs Up 3-31-26

UST Deltas: Elevation Realities 3-29-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

New Homes Sales Jan 2026: The Nays Carry 3-19-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

Housing Starts Jan 2026: Total Starts Up, Completions Up, Permits Down 3-12-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

• The PPI index showed material increases with Goods and Energy driving the move but with Services muted. The YoY move of +4.0% for headline final demand was up notably from 3.4% in Feb 2026. We see “PPI final demand goods” at +4.9% in March, up from +2.5% YoY in Feb, so there is plenty going on under the final demand stats.

• Calling anything a leading indicator these days is tricky with so much event risk and behavioral uncertainty, but the PPI reflects negative trends on the energy and goods side and measure increases in services.

• The “Final demand energy” line hit 11.2% in March, up from -0.7% in Feb as a sequential MoM move in March of +8.5% rang the bell. There are numerous energy lines detailed in the report, and the pressure from the Iran War is no surprise, Energy related effects without question an unpredictable broad bucket on the question of “How bad can it get and for how long?”

• The headline PPI MoM level of +0.5% drops to +0.1% ex-Food and Energy. That cannot ignore the reality of the all-time low of consumer sentiment that is very much influenced by food and energy.

The PPI Final Demand time series is broken out above. The trend shows the sustained rise continuing this month as goods and energy line items keeps the pressure on. We see the low of +0.3% in mid-2023 after the supply and demand crash of April 2020 at -1.5%.

Negative PPI at the COVID peak later saw a demand rebound drive a massive PPI response on the supply-demand imbalances teamed up with extensive relief and stimulus programs with ZIRP added on top of that. The impact of the Russian invasion of Ukraine driving energy higher from the COVID crash seldom gets mentioned by Team Trump (too busy blaming Trump and Powell and they do not want to upset Putin).

That +11.2% in March 2022 came with the start of the tightening cycle as PPI went on its journey to 3.3% by the end of Dec 2024. The current 4.0% in March 2026 is above the 3.3% PPI posted in Dec 2024 (Biden’s last full month in office).

The above table includes a subset of the recent trends on the main PPI lines we choose to focus on for signals. There is certainly no shortage of lines in the PPI release (numerous pages and many lines across Table 1 and Table 2) under various final demand and intermediate goods and services categories for YoY and MoM moves. We covered some of the main groups in the chart, but a scan of the columns in the release looking for outliers is always a good drill. We include some categories that carry lower weightings that are of interest in terms of what they reflect.

PPI data always has a lot to review across the “cost ingredients” as leading indicators to how goods producers might need to consider pricing actions or might experience margin compression. Print out table 1 and Table 2 and ponder the 12-month YoY columns. The very wide range is easy to see.

Energy, materials, and goods are showing the cost pressures…

Energy setbacks are no surprise with gasoline posting a 15.7% MoM and +14.0% YoY. Gasoline was posting deflation as recently as Dec and Jan. Diesel is +42% MoM and +51% YoY, so that is going to be flowing into freight and logistics costs including surcharges. On the intermediate side of the chart collection, we see jet fuel at +42.2% YoY and +30.7% MoM. The disruptions of flights and pressure on airline fares has generated more than its share of headlines.

Food costs were very muted this month, and we have a hard time seeing how that does not change on the combination of energy costs and the pressure on fertilizer that has been in the headlines. Among notable food lines was “Fresh and dry vegetables” at +49% YoY (but -10.7% MoM in March) and +20.2% YoY for coffee (-1.6% March). Beef and veal at +19.7% YoY was down to +2.2% MoM.

“Final demand for Nonferrous metals” was +36.7% YoY for a wide range of reasons as discussed in other commentaries along the way. Unprocessed nonferrous metal ores are +75% YoY. Primary nonferrous metals are +67% YoY.

We see the final demand goods line showing the impact of tariffs and other cost pressures with “final demand goods” at +4.9% YoY and a 29.1% weighting. The Feb to March move of +1.6% come after +1.0% MoM for Jan to Feb after being slightly negative in Dec and Jan. We also see the sustained pressure in intermediate demand for “processed goods” in Feb and March at 6.6% YoY.

Services have been kind…

The “final demand services” line at a 68.3% weighting posted 3.7% YoY. That was not as bad as the goods since and that services line comprises a much bigger slice of what is a services economy in the US. Services even ticked down to 0.0% in March vs. positive increases in earlier months and notably MoM in Dec and Jan. If we drop down into “services for intermediate demand” we see only +2.9% YoY with Transportation and Warehousing a notable pressure point with a number of lines in the 7% handle area.

In the end, the PPI was an unfavorable number with a lot of action ahead subject to Iran outcomes and Goods pricing decisions with tariffs still very much a reality.

See also:

Market Commentary: Asset Returns 4-12-26

CPI March 2026: The CPI Cycle Could Prove Maddening 4-12-26

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

Employment Situation March 2026 4-4-26

Payroll Focus: ADP Highlights March 2026 4-1-26

JOLTS Feb 2026: Openings Down, Hires Down, Layoffs Up 3-31-26

Market Commentary: Asset Returns 3-30-26

UST Deltas: Elevation Realities 3-29-26

Market Commentary: Asset Returns 3-23-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

New Homes Sales Jan 2026: The Nays Carry 3-19-26

Producer Price Index Feb 2026: Getting Warmer 3-18-26

Industrial Production Feb 2026: Capacity Utilization 3-16-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

Housing Starts Jan 2026: Total Starts Up, Completions Up, Permits Down 3-12-26

Existing Home Sales Feb 2026 3-10-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

2025 trade Deficits: Reality vs. Rhetoric 2-19-26

• The fate of the energy sector and flow-through impacts across a wide range of markets are still a moving target. Meanwhile, uncertain goods pricing strategies in 2026 to deal with tariffs also keep the range of CPI scenarios a major challenge for budgeting decisions and economists finding confidence in the underlying variables. The CPI whipsaw in energy and the clear threat to food inflation from rising costs of fertilizer, oil, labor shortages and freight and logistics does not leave room for complacency even if the market yawned at the March 2026 CPI release.

• Our favorite special aggregate CPI index is “All items less shelter” (Table 3 of the release) and it has now moved from reassuring to uncomfortably high at +3.4% YoY in March 2026. As we detail below, that 3.4% for CPI ex-Shelter is up by over a point this month from 2.1% in Feb. Within that special CPI aggregate index bucket, we see “All items less food and shelter” at 3.6% and “All items less medical care” at 3.3%. That is not a pretty picture even if subject to where the Iran war crisis evolves.

• Our favorite example of a useless BLS CPI metric is now “health insurance” (0.9% weighting in CPI index). Headlines and the “real world” household experience of insurance premium spikes and a sharp erosion of coverage economics has somehow translated into YoY health insurance deflation of -5.3%. Meanwhile, the MoM CPI metric posted health care MoM deflation in Jan, Feb, and March 2026. That is a neat trick and might come as a surprise to those paying health insurance premiums. The 6.4% CPI YoY for “Hospital and related services” is not helping the medical services story line with “Home health care” at +7.6% and with “Nursing homes and adult day services” at 5.2%. That is tough CPI given current demographics.

• Energy (6.4% weighting in the CPI index) spiked to +12.5% and naturally captured the headlines in March CPI with Energy Commodities at +19.4% (including Gasoline at 18.9% and 2.9% of the CPI index). Electricity inflation remains a problem separate from the latest Iran issues at 4.6%YoY CPI (2.5% of CPI index) and Utility Piped Gas at +6.4% (0.8% of CPI index). The commodities piece of CPI is tied into global trends from upstream oil and gas to refined products (including diesel, jet fuel, and marine fuel). The market is one sudden escalation away from supply and cost issues worsening (e.g., Houthis and the Red Sea).

The above chart plots the time series for headline and core CPI since Jan 2020 just ahead of COVID. We also detail the long-term medians for each from Jan 1973 with a 3.0% median for headline CPI and 2.9% for core.

Headline CPI of 3.3% is where the market was hovering back in Jan 2025, so we should not be seeing victory laps from the White House on CPI metrics. The Core CPI of 2.6% is above the Sept 2024 lows of +2.4% and also is not “end zone dance” material for Team Trump.

The 2.6% core number is clearly a respectable number in historical context and below the long- term median. That said, it is not a reassuring backdrop with Iran and tariffs still a major risk factor in how goods and services could get priced in 2026. The market also still faces uncertainty around the USMCA review, NATO withdrawal threats, and how that all plays into trade responses.

While economists typically prefer the “core CPI” metric, I remember putting gas in the car next to the supermarket after the Arab Oil Embargo (started Oct 1973 as part of an Israeli war response) was showing its stagflation effects. Headline CPI seemed more important to household purchasing power and household discretionary cash flow. Monetary theories were not the topic du jour in Brockton MA that year (notably in a town dominated by home heating oil at the time).

As we look back at the adventure across the inflation spike of 2022, the damage was mitigated by a well-managed set of Fed actions across 2022 and 2023 that took headline CPI down from 9.1% in June 2022 to 2.9% in Dec 2024. Trump speaks of his 2025-2026 performance as if he started in June 2022 when CPI was 9.1%. Headline CPI is 0.4 points higher now at 3.3%.

Our oft-stated objection to the cause-and-effect rhetoric is that Trump never mentions the role of Russia invading Ukraine in Feb 2022 or how that slammed global oil and LNG and fueled inflation in the US. In fact, Putin gets a red carpet and even gets to cash in on the current crisis in Iran. No blame there from Trump for any US inflation.

The above time series offers a reminder of the multiple inflationary market imbalances across the decades. We plot CPI vs. fed funds to give a sense of Fed policy and real fed funds rate. The combination of inflationary pressures and FOMC question marks could leave the market with negative real fed funds in 2026. If Trump gets his way on lower fed funds, that potential only rises.

As we go to print, the FedWatch “Vegas line” showed a 83.4% chance of no change by the Oct FOMC meeting. The chance of 1 hike by then is just below 2% with the odds of 1 cut by then at 13.9%. As we covered in earlier commentaries, those odds have been whipping around since the start of the Iran War (see Market Commentary: Asset Returns 3-30-26).

The CPI spike in the aftermath of the COVID supply crisis came on the other side of excessive stimulus action that turbocharged demand, in turn bringing major supply-demand imbalances in the goods markets. That inflation effect had ZIRP tailwinds with the invasion of Ukraine by Russia in late Feb 2022 serving as a critical inflationary factor that seldom gets mentioned in the partisan attacks.

The chart offers a look at the first major inflation spike since 1979, which brought Volcker into the job by August that year. The 1979 energy volatility is often framed as the “Iranian oil crisis” (sound familiar?). That earlier 1979 inflation spike rolled into the mother of all tightening cycles from Volcker (including some 20% fed funds days not evident in the weekly average data of that period). That chaos brought a double dip stagflation cycle across 1980-1982 that crushed many bellwether companies.

This current Iranian crisis is much more serious and damaging than the 1979 experience since the US is the #1 oil and gas producer in the world and a major exporter of oil and gas liquids and also includes downstream refined products. The unfolding downstream product supply crisis is doing serious damage from Europe to Asia with jet fuel supply leading the headlines this past week.

The US also neighbors to one of the largest bases of reserves with Canada, who is a major supplier with room for impressive growth if the Canadian policy makers can get out of their own way. Trump has given them plenty of reasons to build their global export capacity and be less dependent on US end markets. Canada is by far the largest oil importer into the US, which in turn frees up more US supply of oil, refined products, and LNG to export.

The above table details a subset of the special aggregate CPI indexes we watch. “All items less shelter” is flashing some warning signs with a significant move higher for YoY metrics during March 2026. Services CPI remains above the 3.0% line as does “Services less energy services” at 3.0%.

We see Durables MoM CPI remaining in check over the past two months as the market tries to handicap where the tariff actions will start to play a role. Nondurables CPI rose to almost 5% in March at 4.9%. “Nondurables less Food” (not shown) hit 7.4% YoY in March.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix is the main event. We already addressed energy and health insurance above. Energy has a very wide range of potential outcomes subject to the rather bizarre twists and turns of a “game theory” with no rules and too much “humanity” in the picture. The toxic mix includes high geopolitical economic stakes, massive egos, religious zeal, and an uncomfortably high mix of cultural ignorance, incompetence and rampant dishonesty.

Medical care services at 3.7% YoY includes “hospital and related services” and moved lower from 4.1% in Feb 2026. With health insurance premiums soaring (despite the BLS measurement), the -5.3% health insurance CPI number seems less than credible. The BLS needs to rework its methodology to better reflect reality. To the extent households drop off health insurance on affordability (notably in the ACA), they then must face that 6.4% CPI threat from “Hospital and related services.” That is down from 7.6% in Feb 2026.

We put together a version of Automotive that is around 11% of the CPI index if we exclude gasoline, which we include in energy (see Automotive Inflation: More than Meets the Eye10-17-22). The discipline shown by OEMs in new vehicle pricing could be coming to an end in 2026 with small increases going a long way on big ticket items and funding costs seeing little relief so far. The CPI cost of a vehicle does not include financing costs, so it comes with an “asterisk” on affordability.

The table above tells the story with “Food-all” at 2.7% (down from 3.1% in Feb 2026). If we use “Food at home,” the 1.9% in March is better than the 2.4% in Feb 2026. In other words, food inflation in general has improved sequentially but there is a lot of noise ahead with labor costs, fertilizer pressures, the cost of simply operating equipment before considering freight and logistics add-ons that flow into the consumer cost.

Both “Food at Home” and “Food Away from Home” are higher in March 2026 than in Dec 2024 (Biden’s last full month). The CPI levels by product line vary widely. Meat CPI at 6.8% YoY was down sequentially from Feb 2026 (Beef and Veal at 12.1%) with Lettuce at 13.8%, Tomatoes at 22.6%, Coffee at 18.7%, and Sweets at 8.1% on the list of gripes for many, including me (I cannot live without lettuce. Sarcasm alert).

The above table highlights a few categories near and dear to many households. Recreation services declined and are well below the 2022 to 2025 levels seen with the post-COVID boom in consumer spending.

We see the lofty tariffs on the “labor arb” countries (notably in Asia) starting to show up in the Apparel line. While 3.4% CPI on Apparel is not back at 2022 levels, there is room for trouble there. February and March were going the wrong way quickly in MoM metrics.

Next comes the simple cost of freight and logistics that will add to the cost recovery challenge. Diesel is up sharply, and that will weigh heavily on delivery costs and related surcharges for all goods and that includes apparel. That will show up in new inventory and cost of sales even as pricing decisions to mitigate tariffs see more visibility (note: buyer writes the check for tariffs, no matter what Trump says). The tariff and freight knock-on unit cost effects will lead to pass-through pricing decisions or worse margins. Choices need to be made.

Material costs in clothing also include a heavy mix of downstream hydrocarbon derivatives that feed clothing prices. While it may not match the market share of the polyester disco shirts (1970s), synthetic clothing costs can impact profit margins and pricing strategies in manufacturing.

Airline fares are tied to jet fuel prices, so that air fare CPI of 14.9% is up from 7.1% in Feb 2026 and 2.2% in January. Jet fuel as a refined product is high on price and short on supply globally. How that flows into vacation plans and business travel is a factor to watch. Summer is the peak travel season.

See also:

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

Employment Situation March 2026 4-4-26

Payroll Focus: ADP Highlights March 2026 4-1-26

JOLTS Feb 2026: Openings Down, Hires Down, Layoffs Up 3-31-26

Market Commentary: Asset Returns 3-30-26

UST Deltas: Elevation Realities 3-29-26

Market Commentary: Asset Returns 3-23-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

New Homes Sales Jan 2026: The Nays Carry 3-19-26

Producer Price Index Feb 2026: Getting Warmer 3-18-26

Industrial Production Feb 2026: Capacity Utilization 3-16-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

PCE Inflation Jan 2026: Personal Income & Outlays 3-13-26

Housing Starts Jan 2026: Total Starts Up, Completions Up, Permits Down 3-12-26

Existing Home Sales Feb 2026 3-10-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

2025 trade Deficits: Reality vs. Rhetoric 2-19-26

• The review of January data loses some of its value given what is unfolding in March in the Iran War, but PCE inflation was “going nowhere fast” in January with headline PCE ticking slightly lower to 2.8% and Core PCE inflation higher to 3.1% and both still well above target.

• PCE was supported by -0.8% in Energy Goods and Services with Food steady at +2.0%. Energy will certainly be moving higher while spiraling costs along the food supplier chain to the kitchen table will also push Food prices higher on a combined range of factors. Freight and logistics costs will be a critical driver even before all the moving parts of fertilizer costs and related supply-demand imbalances.

• During 2025, constructive notes in the data mix had been that consumers were generally spending faster than their income was growing (PCE growth > DPI growth). PCE growth is the main supporter of economic expansion, so that helped the macro story. That relationship just shifted to DPI being ahead of PCE this month for the monthly growth trends. We have a chart near the end of this comment on that history. Jan 2026 saw saving rates rise. The challenge to the consumer from here includes the zero-sum impacts from the Iran War even as health care budgets also trend higher on health insurance premiums.

• The FedWatch odds of no FOMC action have been rising with June odds at 75% for “no action” and even September sees odds at 54% for no easing. Late October is on the cusp of a move at 49.4%. That was not the Trump playbook to start the year.

The above chart updates the time series for “fed funds minus core PCE.” The PCE inflation metric tends to be a focal point for the FOMC and economists, but the pressure on energy costs (notably electricity and utility piped gas) and food inflation had already been attracting household budget focus and influencing consumer moods in a midterm election year.

At last look, the national retail regular gasoline cost today from AAA was $3.63, or up by over 23% over 1 month. Diesel was $4.89 or up by 34%, and that translates into higher delivery costs, surcharges and inflation – or lower profits for those goods and services providers paying those delivery costs.

The long-term median on the FFER vs. PCE differential is 1.4%, but that has been cut almost in half. In a range of comments, Trump had been demanding an immediate move to negative real fed funds rates by the Fed. He might go radio silent on that topic for a while (is that even possible?) until Warsh is in the seat and the Iran effects sorted out.

Today’s PCE release would not have helped with headline PCE price inflation at 2.8% and Core PCE at 3.1% YoY. The UST curve is not showing confidence right now with the 10Y UST at 4.28% and 2Y UST at 3.73%.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 2.8%) and the 2.5% core PCE median (vs. current 3.1%). That 2.8% headline PCE is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target.

The Jan 2026 PCE numbers are at reasonable levels in long-term context, but they are in somewhat of a stall with numerous key lines going in the wrong direction. Even if one seeks to embrace the “one-time event” theme for tariffs, that still means higher price levels that can bring reduced purchasing power for select line items – subject to a household’s typical “basket” (coffee drinkers, beef eaters and “sweets” fans take note). The Iran effects now open up even more stagflation scenarios.

We include the 1997-2026 timeline above for a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

Debate in financial and economic circles rage on around whether the Fed inflation target should be 2.5% or 3.0% or some other number. The above chart offers a reminder of how hard it is to get to 2.0% or below for headline PCE or core PCE. The earlier chart from 1972 covers the timeline from the inflationary/stagflationary periods of 1973 to 1982 to hammer that home.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and core PCE median as noted in the chart. It took a lot to go wrong in that time horizon to cross that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001, oil crashes in the late 1990s and in the late 2014 to early 2016 period, and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

In the above timeline, we even see deflation in the post-crisis recession trough in mid-2009. The collapse in oil prices in late 2015 and then the COVID impact in 2020 gave an assist to low PCE before the supply-demand boomerang hit in 2021. Oil is a big headline mover whenever there is a sharp decline or spike, and we have had plenty of both.

This current situation rivals the geopolitical risk of late 1973 into early 1975. The biggest difference of course is that the US is now the largest oil and gas and liquids producer in the world. On the other hand, those US and Canadian producers will be raising prices along with the rest of the world.

It is interesting that the topic of the Feb 2022 invasion of Ukraine and ensuing oil and gas spike never seems to find a way into the Trump and MAGA rhetoric on inflation in 2022. That was a major factor in inflation, but the economic reality of the Russia relationship did not serve the domestic political priorities of Team Trump in assigning any blame there for inflation.

The lack of justice in this Middle East crisis is that the US is unleashing Russia to produce and profit by waiving sanction limits. They say “temporary” but that faces some skepticism with pro-Russia Witkoff and Jared on the job as NY real estate guys (not geopolitical experts with a pro-Democracy set of guidelines). The fact that Putin was a major factor in the 2022 inflation and now gets to profit from this round of oil inflation goes into the “life is not fair” category.

Gasoline has been in deflation mode for most of 2025, and that helped dampen the inflation headline numbers. As 2025 wore on, energy inflation has gone the other way and notably in areas such as electricity and piped utility gas (see CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26, Simplifying the Affordability Question 11-11-25, Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25). Now oil and LNG will pile on globally.

The above chart frames the long-term differential history between PCE and core PCE since 1972. The long-term median differential is zero and we are currently at -0.3%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s. We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest. Now oil will join in.

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month for a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth, the conclusion is that the consumer is feeling good or perhaps tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums).

The stimulus overload of 2021…

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to current rates. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022.

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

The COVID relief binge…

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump is launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this and the prior chart just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems at the end of 2025.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through Jan 2026 (we dropped 2019 from the chart this month given chart crowding). It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or other health care premiums under ACA. There is also the recurring pressure on select durable goods that face tariffs.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. The current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the savings rate history with the latest numbers rising to 4.5% from 4.0%. That is a tick below the June highs of 4.6%. The BEA savings rate data comes with the warning label that it has been a case study in revisions, but it does make intuitive sense as a reflection of how confident households are in their spending vs. savings.

We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). Savings rates peak in times of worry (occasionally panic) as evident in the chart above. As of 2025, households had clearly been spending even if some might come to regret it when credit card bills come due. As we roll into 2026, we could start to see pressure on the PCE lines.

Looking back across time, we see some examples. The period leading into May 1975 was no picnic after the massive stagflation bout and the same was true in Nov 1981. Dec 1992 had a raft of issues as the commercial real estate bubble was bursting (and hammering some banks), the leveraged finance boom was on the back end of the default cycle, the thrift crisis effects were still playing out across some major regional economies (notably TX and CA), and the regional oil patch pain that had come home to roost in 1987-1990 was lingering.

See also:

GDP 4Q25 Second Estimate: Sharp Move Lower 3-13-26

Housing Starts Jan 2026: Total Starts Up, Completions Up, Permits Down 3-12-26

CPI Feb 2026: It’s Making You Wait… 3-12-26

Existing Home Sales Feb 2026 3-10-26

Market Commentary: Asset Returns 3-8-26

Payrolls Feb 2026: Into the Weeds 3-8-26

Employment Situation Feb 2026: Payrolls Get Ugly 3-8-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

PCE Income & Outlays Dec 2025: Inflation Reversal? 2-20-26

4Q25 GDP (Advance Est.): Less Distortion This Time 2-20-26

2025 trade Deficits: Reality vs. Rhetoric 2-19-26

Industrial Production Jan 2026: Capacity Utilization Trends 2-19-26

Home Starts Dec 2025: Wrapping a Weak 2025 2-18-26

Market Lookback 2-17-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

• Headline and Core CPI remain in check for Feb 2026 even if all eyes during the spring will be locked in on how the energy line and the scary impacts of higher freight and materials costs flow into other CPI lines. That includes food costs. Overall, the CPI mix looked a lot like Jan but is heading for a lot more change (see CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26). We get a PCE inflation update this week with PCE running ahead of CPI at this point (see PCE Income & Outlays Dec 2025: Inflation Reversal? 2-20-26).

• Energy will remain the hot topic ahead as the Energy CPI of 0.5% (6.3% of CPI index) includes -5.2% for Energy Commodities (3.0% of CPI) along with Electricity (2.5% of CPI index) at +4.8% CPI and Utility Piped Gas (0.8% of CPI index) at +10.9% CPI. That Energy CPI includes a -5.6% CPI for Gasoline in the commodities bucket. The recent spike in gasoline will drive surcharges and delivery cost inflation in coming weeks and months that will necessarily flow into food, goods, and services as freight and logistics bills rise.

• Health insurance inflation is one of those areas that the White House is unlikely to bring up given the trend in premiums experienced by the consumer. That said, right now the CPI line for health insurance shows deflation given the methods used by the BLS for health insurance. It is one of those issues (like Shelter and Owners Equivalent Rent) where the day-to-day realities of “cash-in, cash-out” at the household level don’t align with CPI. The reported Health insurance CPI is most definitely diverging from the household checkbook experience. We see a -3.6% YoY CPI for health insurance as of Feb 2026. Health care insurance has a CPI index weighting of 0.88% but punches above its weight class in importance for many consumers.

The above chart tracks the post-COVID journey of headline CPI and Core CPI since just before COVID and then across the inflationary spike into 2022. We saw the end of ZIRP in March 2022 and then the tightening cycle that saw sharply lower inflation across 2023 and into 2024. We see the 2.4% lows in late 2024 for headline CPI with the end of December 2024 at 2.9% for headline.

Trump always starts his bragging rights by comparing his CPI to June 2022, which is not how reality works. The FOMC did their job quite successfully across 2023 after they whiffed in 2021 by waiting too long. Trump doesn’t get to start his game clock at 9.1% in June 2022, and Trump should probably thank Powell and the FOMC for dealing him good cards.

By the numbers, the current +2.4% headline CPI is back around a recent Sept 2024 low point noted in the chart. The Feb 2026 2.4% headline and 2.5% core remain above target but are in a very good zone based on history. The Iran War and energy fallout is about to upset the applecart in coming weeks. For example, national retail regular gasoline is at $3.58 as we go to print, which is up by +22% over 1 month. Diesel is at $4.83 or up by 32% (Source: AAA). Diesel flows into the transport cost questions.

While Trump has slammed Powell and Biden as the most destructive forces since the Black Plague, the fact is that Biden was only the second President in 50 years to get through his term with no recession months. Clinton was the other recession-free President across two terms but with much better headline and PCE growth years to boast (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24). Avoiding a recession by late 2022 was a function of strong consumer spending and low unemployment that pushed through the CPI pain.

One could say that Powell led a Fed that tightened and beat inflation with no recession. Volcker had a double dip but also faced a much more dangerous inflation threat. We live in a policy world where the lack of blind obedience makes one the enemy subject to blame and the target of generally concept-lite and fact free attacks. Too often the attacks are economically incoherent. That will only muddy the analysis of the Iran war fallout.

The above time series offers a reminder of the multiple market imbalances across the decades. The CPI spike in the aftermath of the COVID supply crisis teamed up with excessive stimulus action and the invasion of Ukraine by Russia in late Feb 2022. It is not a surprise that you never hear Putin’s role in the inflation spike cited by the White House.

The chart also offers a look at the first major inflation spike since 1979 brought Volcker into the job by August that year. The 1979 energy volatility is often framed as the “Iranian oil crisis” (sound familiar?). This current Iranian crisis is much more serious and damaging than the 1979 experience (unless you were a hostage). That period rolled into the mother of all tightening cycles from Volcker (including some 20% fed funds days) and a double dip stagflation cycle across 1980-1982 that crushed many bellwether companies.

The above table updates the Special Aggregate indexes from Table 3 in the CPI release. Our favorite is “All items less shelter” since we consider Owners’ Equivalent Rent as a fairly useless derived metric that bears little resemblance to the household budget and the “cash in, cash out” checkbook experience. All items less shelter is at 2.1% in Feb 2026, which is down from the mid to late 2025 highs but above the 2023-2024 levels.

We see Services at 3.1% as the line remains stubborn in a services economy with a decent trend in consumer spending. We look for consumer spending metrics in GDP reports and the Personal Income and Outlays releases (we get both of those this week) among other releases (Retail Sales, etc.). Durables CPI levels are in check but above the deflation of 2023-2024. Nondurables also remain low in the sub-2% range.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so they are the main event. We already addressed energy and health insurance in the bullets above. Energy is already spiraling and swinging wildly the past week.

Medical care services at 4.1% includes “hospital and related services” at 7.6% with health insurance premiums soaring outside the BLS measurement. To the extent households drop off health insurance on affordability (notably ACA), they then must face that 7.6% CPI threat from hospital and related services.

We have put together a version of Automotive that is around 11% of the CPI index if we exclude gasoline, which we include in energy (see Automotive Inflation: More than Meets the Eye10-17-22). The discipline shown by OEMs in new vehicle pricing could be coming to an end in 2026 with small increases going a long way on big ticket items and funding costs seeing little relief so far.

The table above tells the story with “Food-all” at 3.1% or flat to Dec 2025. If we use “Food at home,” the 2.4% is also flat to Dec 2025. In other words, food inflation in general is not lower and not higher in Feb 2026 vs. Dec 2025. Both “Food at Home” and “Food Away from Home” are higher in Feb 2026 than in Dec 2024 (Biden’s last full month).

The story in the line items varies by product line. Meat CPI at 8.6% (Beef and Veal at 14.4%), Lettuce at 15.3%, Coffee at 18.4%, and Sweets at 9.0% are on the list of gripes for many, including me (I can live without the lettuce).

The above table highlights a few categories near and dear to many households. We see the lofty tariffs on the “labor arb” countries (notably in Asia) starting to show up in the Apparel line. Airline fares are tied to jet fuel prices, so that 7.1% line is just getting warmed up. How that will flow into vacation plans and business travel will be one to watch.

Some CPI Histories:

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

Inflation: Events ‘R’ Us Timeline 10-6-22

See also:

Existing Home Sales Feb 2026 3-10-26

Market Commentary: Asset Returns 3-8-26

Payrolls Feb 2026: Into the Weeds 3-8-26

Employment Situation Feb 2026: Payrolls Get Ugly 3-8-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

PCE Income & Outlays Dec 2025: Inflation Reversal? 2-20-26

4Q25 GDP (Advance Est.): Less Distortion This Time 2-20-26

2025 trade Deficits: Reality vs. Rhetoric 2-19-26

Industrial Production Jan 2026: Capacity Utilization Trends 2-19-26

Home Starts Dec 2025: Wrapping a Weak 2025 2-18-26

Market Lookback 2-17-26

CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26