<div id="readability-page-1"><p>Savvy stock market investors know that nothing can kill a bull market like inflation.</p><p>In 2022, soaring prices for goods cooled off the pandemic-era bull market, and pushed the Fed to jack up interest rates, sending stocks swooning that year. Similarly, the 1970s are widely considered a lost decade due to inflation, in part driven by rising oil prices.</p><p>Investors are facing another energy crisis stemming from the standoff in the Strait of Hormuz, which is driving up prices again. The Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation gauge, showed prices rising at their fastest pace in three years.</p>  <div> <div> <p><img width="880" height="587" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2Nkbi5jb250ZW50LmZvb2xjZG4uY29tL2ltYWdlcy8xdW1uOXFlaC9wcm9kdWN0aW9uLzcxNGIzOWE3NjRiZTA0MWU5NTJkYjRlN2Q1OGNjNTI5MzYyYTU3NzUtMTIwMHg4MDAuanBnP3c9MTIwMCZoPTgwMCZxPTc1JmF1dG89Zm9ybWF0Jnc9Mzg0MA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2Nkbi5jb250ZW50LmZvb2xjZG4uY29tL2ltYWdlcy8xdW1uOXFlaC9wcm9kdWN0aW9uLzcxNGIzOWE3NjRiZTA0MWU5NTJkYjRlN2Q1OGNjNTI5MzYyYTU3NzUtMTIwMHg4MDAuanBnP3c9MTIwMCZoPTgwMCZxPTc1JmF1dG89Zm9ybWF0Jnc9Mzg0MA"/></p><p>Image source: Getty Images.</p> </div> </div><h2 id="what-did-the-pce-inflation-report-say">What did the PCE inflation report say?</h2><p>Inflation, as measured by the PCE price index, rose 0.4% in May, matching April and beating expectations of 0.5% growth. Core inflation, which excludes food and energy, was up 0.3%, compared to 0.2% in April. On an annual basis, the PCE index was up 4.1%, increasing from 3.8% in April, while core PCE rose 3.4%.</p><p>The inflation rate has clearly inflected since the war in Iran began, though core inflation has grown less slowly since it excludes energy prices.</p><p>Investors shrugged off the numbers as the <strong>S&amp;P 500</strong> was near flat around noon today. The market seemed focused instead on the impact of the memory shortage after <strong>Micron </strong>delivered another blowout earnings report last night, and <strong>Apple </strong>stock was down after announcing price hikes to pass on higher memory and storage costs.</p><h2 id="what-it-means-for-investors">What it means for investors</h2><p>Investors tend to keep an eye on the PCE because the Federal Reserve monitors it to make interest rate decisions. </p><p>In its “dot plot” forecast earlier this month, the Fed said it now expects one rate hike this year, up from a forecast in March of one rate cut. It also said that it expected PCE inflation to end the year at 3.3%.</p><p>Right now, there’s a lot of uncertainty in both inflation and where interest rates are headed.</p><p>Oil prices, which have been the primary driver of inflation, have started to come down since President Trump announced an end to the war earlier this month, though the status of the Strait of Hormuz remains uncertain. Brent crude prices are now at their lowest since the war broke out, trading around $72 a barrel, suggesting traders are confident the war is winding down, and the Strait will reopen.</p><p>If that’s true, it also means that inflation is less of a concern than it normally would be, since it’s expected to come down modestly in June, according to forecast from the Cleveland Fed.</p><p>Inflation tends to make an interest rate hike more likely, but there’s also additional uncertainty around rate hikes due to new Fed Chair Kevin Warsh, who has tamped down the need for forecasts and believes the Fed should say less about what it thinks. Warsh even refused to give his own forecast for the dot plot.</p><p>Overall, inflation deserves monitoring from investors, but given the decline in oil prices and the Fed’s lack of clarity, it’s less of a factor than it normally would be. Still, if the situation in the Middle East changes and oil prices start rising again, don’t be surprised if future PCE reports swing markets.</p></div>

.SPX

<p>The latest PCE inflation report indicates prices rose at their fastest pace in three years, with the annual index up to 4.1%. Despite this surge, investors remained largely unconcerned as the S&P 500 stayed flat, focusing instead on tech earnings and memory shortages. While oil prices have declined due to geopolitical developments, uncertainty remains regarding future interest rate decisions by the Federal Reserve under new leadership.</p>

- In 2022, inflation significantly impacted the stock market, prompting the Fed to increase interest rates in response to rising prices.  
- The recent Personal Consumption Expenditures (PCE) report showed a 0.4% increase in inflation for May, with annual core PCE inflation now at 3.4%.  
- While oil prices have started to decline, keeping inflation concerns less severe, uncertainty around future interest rates and geopolitical tensions continues to influence investor sentiment.

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PCE Inflation Reached Its Highest Level in 3 Years. Here’s What Investors Need to Know.