29.05.2026 - Higher Inflation - ignored

Yesterday, the Fed’s preferred inflation gauge, the PCE Price Index, was released largely in line with expectations. However, the details were less encouraging.

Core PCE Inflation (excluding food and energy) accelerated to 3.3% YoY, up from 3.2% in March. On a monthly basis, Core PCE rose 0.2%, slightly below expectations of 0.3%.

Headline PCE Inflation came in at 3.8% YoY, matching expectations but increasing from 3.5% the previous month.

Today, several European inflation releases also mostly pointed toward renewed price pressures:

May CPI Inflation (YoY)

• France: +2.4% (est. +2.3%) vs. 2.2% in April

• Italy: +3.2% (est. +3.2%) vs. 2.7% in April

• Spain: +3.2% (est. +3.4%) vs. 3.2% in April

• Germany: +2.6% (est. +2.9%) vs. 2.9% in April

Markets: nothing stops the US Tech rally

• Equities: mostly higher globally

• Bonds: yields continue to decline - US 10-year Treasury yields 4.45%, while Japanese 10-year yields also continued to rise to 2.66%

• Commodities: Oil prices weakened on renewed hopes for an Iran deal - WTI USD 87, Brent USD 91. Precious metals gain with gold at USD 4’500, silver USD 75

• Cryptos: with downside pressure - Bitcoin USD 73k.

• Currencies: USD trading sideways

• Volatility: The VIX fell below 16

My View: Despite the inflation backdrop, markets remain focused on one theme only: AI and technology. Markets continue to ignore what is happening beneath the surface.

If the Iran conflict persists and the Strait of Hormuz remains disrupted, I see oil prices biased to the upside. Global oil inventories are falling rapidly and could soon reach critical levels if supply disruptions continue.

Higher energy prices ultimately feed through the entire economy. Transportation, manufacturing, and consumer goods all become more expensive, creating additional inflationary pressure. This increases the likelihood that interest rates remain higher for longer and could even force further rate hikes by central banks such as the Bank of Japan, the ECB, or potentially others later this year.

Yet investors appear completely unconcerned. Falling bond yields, record-high equity valuations, compressed volatility, and aggressive risk-taking suggest that markets are pricing in a more than perfect scenario.

The current environment increasingly reminds me of the late stages of previous market manias, where investors stop paying attention to risks and focus only on what is moving higher.

The madness can continue for longer than many expect. The only question is: On which day does the music stop playing?

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