Posted originally on May 29, 2026 by Martin Armstrong |  

The latest PCE inflation report confirmed exactly what I have warned. Inflation was never “transitory,” and the Federal Reserve has completely lost control of the narrative. The Fed’s preferred inflation gauge, core PCE, rose 3.3% annually in April, up from 3.2% in March and well above the Fed’s mythical 2% target. Headline PCE inflation accelerated to 3.8%, the highest level in roughly three years.

The government and mainstream economists will immediately try to calm everyone by saying the monthly core increase was “only” 0.2%. They are playing games with statistics because they know the public is scared. The reality is that inflation has remained above target for over five years straight while wages continue failing to keep pace with real living costs. The average person does not care about seasonal adjustments or revised models. They care that groceries, gasoline, insurance, rent, electricity, and debt servicing costs continue rising together.

Energy remains the key. Gasoline prices jumped 12.3% in April alone and are now reportedly more than 50% higher than late February as the Iran conflict disrupted shipping routes, insurance markets, and energy supply chains tied to the Strait of Hormuz. The Fed cannot print oil. It cannot lower geopolitical risk with interest rates. Central bankers are trapped because war-driven inflation behaves very differently from ordinary business cycle inflation.

Meanwhile, real personal spending rose only 0.1% after inflation adjustments while personal income was flat. Adjusted for inflation, incomes actually declined. This is exactly how stagflation develops. Prices rise faster than household purchasing power while economic growth weakens underneath the surface. The government says consumer spending rose 0.5%, but if inflation absorbed nearly all of that increase, then people are simply paying more for the same standard of living.

The numbers themselves are becoming increasingly distorted. Reuters noted that core PCE is now running hotter than CPI, which is extremely unusual. That divergence is creating panic inside policy circles because the Fed built its credibility around PCE as the “better” inflation measure. Now they are suddenly discussing alternative trimmed-mean models and adjusted calculations because the official gauges are moving in the wrong direction again. This is always how governments behave during inflation waves. They change definitions once the numbers become politically dangerous.

The debt crisis sits underneath all of this. Washington cannot tolerate high rates indefinitely because the federal government itself is drowning in debt. Every percentage point increase in rates explodes interest expenses across trillions in Treasury issuance. Yet lowering rates risks reigniting inflation even further. The Fed is trapped between sovereign debt instability and persistent inflationary pressure created by war, supply chain fragmentation, energy costs, and deglobalization.

This is why I warned years ago that inflation would become structural rather than cyclical. The old world of cheap globalization is breaking apart. Nations are reshoring production, militarizing trade, subsidizing domestic industry, sanctioning rivals, weaponizing currencies, and preparing for prolonged geopolitical confrontation. All of that raises costs permanently.

The public keeps waiting for prices to “normalize,” but normalization itself is over. Governments accumulated unimaginable debts during the era of cheap energy, cheap labor, and global stability. Now the geopolitical order is fragmenting at the exact moment sovereign debt has reached unsustainable levels. That combination is deadly because governments can no longer solve crises with unlimited stimulus without fueling another inflation wave.