US Continuing Jobless Claims Rise to 1.786 Million, Above Expectations; Labor Market Shows Signs of Cooling

US PCE Inflation Climbs to 3.8%, Hitting a Nearly Three-Year High; Geopolitical Conflicts Exacerbate Stagflation Fears

According to the latest data from DataTrack, the year-over-year growth rate of the US Q2 2026 Personal Consumption Expenditures (PCE) price index climbed strongly to 3.8%, showing a significant jump compared to the previous value of 3.5% in Q1 2026, and setting a new high since May 2023. This result met the market's previous consensus expectation of 3.8%, but the persistently high price increases highlight that the path for inflation to fall back to the 2% target remains bumpy. Observing the detailed performance, this inflation surge was mainly driven by energy and commodity prices. Excluding the more volatile food and energy, the year-over-year growth rate of core PCE ticked up to 3.3%, but the month-over-month increase cooled to 0.2%, slightly below the market expectation of 0.3%, indicating that price pressures in the services sector are showing signs of partial easing. However, on the income and spending side, real personal income saw almost zero growth, forcing people to tap into their savings to cope with high living costs, and consequently, the personal saving rate plummeted to a recent low of 2.6%. The main reason for the boost in this period's PCE data points directly to the recent deterioration of the geopolitical situation. Analyses by institutions such as Forbes point out that the energy price shock triggered by the US-Iran conflict has not only pushed up gasoline costs but also spilled over into the goods sector through the supply chain. Commentaries from State Street and others suggest that the US is facing the typical early characteristics of stagflation, where "slowing growth and accelerating inflation" intertwine, which not only erodes consumers' real purchasing power but also significantly limits the operational space for monetary policy. Looking ahead, in the short term (1-2 months), market focus will revolve around geopolitical developments and the policy rhetoric of the new Federal Reserve Chairman, Kevin Warsh. If the US and Iran can reach a preliminary ceasefire agreement, the pullback in energy prices is expected to provide a buffer for summer prices; however, in the medium term (3-6 months), as savings bottom out and real income remains pressured, US consumption momentum may face the risk of being unsustainable. If economic growth weakens further and inflation remains stubbornly high due to elevated oil prices, expectations for rate cuts in the second half of the year could be completely wiped out, and investors need to be on alert for severe volatility from the repricing of risk assets. Web Search References: Forced To Spend More, Affording Less: American Consumers In 2026 Higher Inflation, Slower Growth: Hormuz Chokes US Economy - State Street SPDR S&P 500 ETF Trust (ARCA:SPY - Benzinga The first inflation report under new Fed chief Kevin Warsh shows prices at highest in nearly 3 years - CBS News