12.05.2026 - US Inflation shock gets real

Inflation in the US surged to its highest level since May 2023 as the Iran conflict and elevated energy prices continue to feed through the economy.

April CPI inflation data came in higher than expected:

• CPI YoY: +3.8% (est. 3.7%)

• Core CPI YoY: +2.8% (est. 2.7%)

Markets:

• Equities: US Futures initially traded lower, but saw a modest rebound after the data release.

• Bonds: Yields initially moved higher before easing slightly after the release. US 10Y at 4.43%, US 30Y at 5.0%, Japan 10Y at 2.55%. UK yields also moved higher amid political noise.

• Commodities: il prices continue to rise with WTI around USD 101/barrel and Brent at USD 107/barrel. Precious metals slightly weaker with silver at USD 84/oz and gold around USD 4’705/oz.

• Currencies: USD stronger

• Cryptos: slight pullback - Bitcoin USD 81k

• Volatility: The VIX tickt slightly towards 19

My View: I struggle to understand how markets interpret these inflation numbers in a constructive way. Inflation now appears on track to move closer toward the 4% level again.

The situation for the Federal Reserve is becoming increasingly complicated. The labor market still looks relatively resilient, while inflation remains the much bigger issue. In my view, markets still underestimate the possibility that the Fed may need to stay restrictive for longer, or potentially even consider another rate hike if higher energy prices continue to spread deeper into the economy through transportation, production, and consumer prices.

Higher interest rates also translate directly into higher mortgage costs for homeowners. Financial stress among consumers continues to build. Google searches for “help with mortgages” have reached levels last seen before the 2008 financial crisis. US foreclosures surged to a six-year high last quarter, while 55% of Americans say their financial situation is worsening. At the same time, the US savings rate dropped to its lowest level in 3.5 years.

The average American consumer is increasingly under pressure. High credit card balances and rising auto lease delinquencies are additional warning signs that should not be ignored.

Also, the argument of a “roaring economy” does not fully hold up anymore. Consumer finances are increasingly deteriorating beneath the surface. Rising living costs, expensive financing conditions, weakening savings rates, and growing debt burdens suggest that many households are already under significant pressure despite headline economic data still appearing resilient.

At the same time, the debt situation of the US government itself should not be ignored. The US remains heavily dependent on investors continuing to absorb massive Treasury issuance. With inflation staying elevated and interest rates remaining high, financing costs continue to rise. This increases pressure on the fiscal situation and leaves markets increasingly sensitive to any weakening in demand for US Treasuries.

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