The Point, 5.16.26: Markets rediscover inflation 🫤

Rising interest rates are finally spooking markets. Plus, the one thing worth knowing about the Trump-Xi summit, and memes of the week explore who still supports Trump.

You don’t need to follow financial news every day to keep up with markets. You just need a sharp weekly summary of what really matters. Here’s The Point:

Inflation is getting more serious. Stocks retreated on May 15 as inflation pushed interest rates to 15-month highs, which has implications for stocks and many other asset classes.

The inflation news is broadly problematic. The overall inflation rate jumped from 3.3% in March to 3.8% in April. That’s largely because of the Iran war, Iran’s closure of the Strait of Hormuz and soaring energy prices.

Inflation is probably going higher still. Wholesale inflation jumped from 4.3% in March to 6% in April. It costs more to produce and transport stuff because diesel fuel and most other forms of energy are suddenly a lot more expensive. Wholesale inflation usually becomes consumer inflation as producers pass it along. The Cleveland Federal Reserve’s Inflation Now tool estimates that inflation today is 4.2%. That would be the highest since 2023, when consumers were gasping from the soaring prices that tarnished Joe Biden’s presidency.

The latest price hikes represent an ominous inflection point for consumers: Inflation is now outpacing wage growth, for the first time since 2023. That means the typical workers is falling behind. And it’s not an anomalous blip. We’ve been warning about declining real-income growth for several months because it shows up prominently in our Better-Off Index.