Price Regimes

Current Assessment — June 2026

Prices Are Still Climbing. Growth Is Not Keeping Up.

CPI: 4.2% (prices are 4.2% higher than a year ago)
PPI: 6.5% (it costs businesses 6.5% more to make things than a year ago, more pressure on the way)
Real wages: -0.8% (your paycheck buys less than it did a year ago)
Recession probability: 49% (close to a coin flip, according to Moody’s, a company that rates financial risk)

Prices Are Still Climbing. Paychecks Are Not Keeping Up.

A few terms you’ll see a lot in this piece, explained once, so the rest makes sense:

CPI is how fast prices are rising for regular people, the stuff you buy at the store, gas, and rent.
PPI is how fast it costs businesses to make things. This usually shows up in your prices a few months later, like a wave that hasn’t reached the shore yet.
Real wages means your paycheck after you subtract inflation. If prices rise faster than your raise, your “real” pay actually shrank, even if the number on your paycheck went up.

Regime 1 — Inflation

Think of it like a relay race with three runners. First, businesses pay more to make stuff. That’s PPI. A few months later, you pay more at the store. That’s CPI. The Fed has its own scorecard for this, called PCE Core, and it hasn’t even gotten the baton yet.

Right now, PPI (the first runner) is at 6.5%. That means a wave of higher prices is still on its way to store shelves. The Fed’s preferred report on this comes out late this month, and it’s expected to confirm the pressure is still building.

CPI (May): HOT - 4.2%

What’s driving it: Energy prices (mostly gas) are up 23.5% from a year ago, largely because of the conflict in Iran. More than 60% of May’s price increase came from energy alone. But even stripping out energy, “core” prices are up 2.9%, meaning the problem is spreading beyond just gas.
What it costs a typical family: A household making $60,000 a year is effectively losing about $2,520 in spending power annually at this inflation rate. That’s real money disappearing from grocery budgets and bills, not because anyone spends more, but because the same money buys less.
The trend: April was 3.8%. May was 4.2%. It’s been climbing for two months straight, not slowing down.
What’s coming next: Remember the relay race? The “first runner” (PPI, wholesale costs) is already at 6.5%, well ahead of where CPI is now. That gap usually closes over the next 2 to 6 months, meaning consumer prices likely have further to climb before they level off.

Core CPI (May): WATCH - 2.9%

This is prices minus the food and energy categories (the ones that bounce around the most). It’s still running well above the Fed’s 2% target, which means this isn’t just a gas-price problem.

PPI Final Demand (May): PIPELINE PRESSURE - 6.5% YoY

This is the “first runner” in the relay race, what it costs businesses to make and sell things. It jumped 1.1% in a single month, way more than expected, and it’s the biggest monthly jump since 2022.

Breaking it down further:

Raw materials (the very first step, like lumber before anyone builds a house with it): up 12.3% from a year ago. This is the earliest, rawest stage of the pipeline, and it’s surging.
Almost-finished goods (one step before they hit a store shelf): up 6.5% from a year ago.
Energy at the wholesale level: up 10.7% in a single month, mostly gasoline, driven by the conflict in Iran disrupting oil shipping routes.
Energy at the wholesale level: up 10.7% in a single month, mostly gasoline, driven by the conflict in Iran disrupting oil shipping routes.

The big picture: nearly every stage of this “relay race” is running hot. Raw materials, mid-stage goods, and energy are all pushing prices higher, and that pressure hasn’t fully reached your everyday shopping yet.

Energy Prices (May): EASING -+23.5%

Year over year. Gasoline easing as the Iran conflict de-escalates. WTI ~$85/barrel.
A memorandum of understanding was signed on June 19, aiming to resolve the conflict within 60 days. Gasoline dipped below $4 nationally for the first time since March, still up roughly 25% year over year, but the direction has reversed from the peak.

Regime 2: Stagflation (Stuck Between Bad and Bad

We Are in Stagflation Lite

Stagflation is when prices keep rising while the economy is slowing. Normally, those two things don’t happen together. It’s a tough spot, because the Fed’s usual tools fight one problem by making the other one worse.

CPI: 4.2%
Economic growth (GDP): just 1.6% in the first quarter, weak
The Fed: stuck, can’t cut rates without making inflation worse, can’t raise them without hurting an already-slowing economy
Real wages: -0.8% (your money buys less than it did a year ago)

Not the 1970s. Not fine, either

Misery Index: 8.5. This is just inflation and unemployment added together. The higher the number, the worse things generally feel for everyday people.
Moody’s Recession odds: 49%, according to Moody’s. Close to a coin flip.Moody’s recession prob: 49%

Schwab’s own mid-year 2026 outlook, published June 12, independently flags several of the same pressures: “negative real wage growth, weak savings, and rising energy costs” squeezing consumers, alongside “sticky” inflation with energy and AI-driven capital spending adding to elevated core services inflation. That’s a major retail brokerage’s research arm describing the same conditions this piece calls Stagflation Lite, using its own language.

Stifel’s 2026 outlook puts it bluntly: P/E ratios “don’t matter... until they’re the only thing that matters,” and the firm has specifically recommended hedging concentrated Big Tech exposure with the same names this piece already favors, healthcare, consumer staples, and gold. Stifel’s own S&P 500 range for 2026 runs from roughly 6,500 on the downside to 7,500 on the bull case, a wider and more cautious band than several other firms cited elsewhere in this Monitor.

What this means for your money in plain terms

When growth slows, but inflation remains high, traditional portfolios get squeezed. Here is how to reposition your capital to protect purchasing power and exploit structural shifts:

Own real, physical stuff. Gold, silver, and basic commodities tend to hold their value even when money itself is losing value. Central banks (the world’s biggest, most cautious investors) have been buying record amounts of gold for three years running; that’s a signal worth noticing.
Don’t lock your money up for a long time right now. Short-term, easily accessible savings (like Treasury bills) are currently paying over 4% with very little risk. Long-term bonds, on the other hand, lose real value when inflation is high.
Favor companies that can raise their prices. Some businesses (utilities, energy companies, industrial firms) can pass rising costs on to customers without losing them. Those tend to hold up better than businesses that can’t.
Don’t put all your eggs in the biggest 10 stocks. Right now, the 10 largest companies make up about 35% of the entire stock market’s value, the highest concentration in nearly a century. If those names slow down, a huge chunk of “the market” slows down with them. Spreading your money across more companies reduces that risk.
Keep some cash on the sidelines. A cushion of cash, earning a decent interest rate, gives you options. If prices drop later this year (some are expected to, like discount retailers in the fall), having cash ready means you can take advantage of it instead of being stuck.
Rethink the old “stocks and bonds balance each other out” rule. That rule works great when inflation is low. Right now, both stocks and bonds have been struggling at the same time, so leaning on bonds as your “safety net” isn’t working the way it used to.

Why this is happening: the trap, explained

Imagine you’re the Fed. Prices are rising, so normally you’d raise interest rates to cool things down. But the economy is already weak, and raising rates further could tip it into a real recession. So you’re stuck: cutting rates makes inflation worse, raising them makes growth worse. That’s the trap.

A few signs of how real this is getting:

Real wages: -0.8% year over year. Your paycheck is growing, but prices are growing faster, so you’re actually falling behind.
A confusing job market. There are still 7.6 million open jobs, but layoff claims have jumped to 242,000, the most since 2023. Companies are hiring in some places and cutting in others at the same time.
Inflation isn’t just about gas anymore. Core prices (after removing food and energy) are up 2.9%, suggesting the trend is spreading to things like rent and everyday services.
People expect prices to keep rising, and that becomes self-fulfilling. When people believe prices will keep going up, they ask for raises, and companies raise prices to cover them, which then actually pushes prices up further. Surveys show people now expect 4.6% inflation over the next year, well above where expectations sat just a few months ago.

Regime 3: Deflation Risk (When Prices Falling is Actually Bad News

Wait, falling prices are bad?

It sounds backward, but yes. Deflation means prices are falling across the whole economy, and that usually means trouble, not a discount. Here’s why: if you expect something to be cheaper next month, you wait to buy it. Multiply that by everyone in the country, and suddenly nobody’s spending. Businesses sell less, so they cut jobs. Laid-off workers spend even less. Prices fall further. It’s a downward spiral that’s brutally hard to escape. Japan struggled with this for thirty years.

The U.S. is not there right now. But here are the early warning signs worth watching, like a smoke detector rather than an active fire:

What bond investors expect inflation to be in 5 years (a number called the “TIPS breakeven”): still elevated, not flashing a warning yet, but worth watching if it falls sharply.
How much money is circulating in the economy (M2): it actually shrank in 2022-23 for the first time since the Great Depression. It’s recovered some since, but slowly.
Whether wholesale prices (PPI) are falling faster than consumer prices (CPI): if businesses are cutting their own costs faster than they’re cutting what they charge you, it usually means they’re squeezing profits before they start cutting jobs.
Copper prices. Copper gets used in almost everything that’s built or manufactured, such as wiring, construction, and cars. When copper prices fall, it often signals that global factories and construction are slowing. Investors nickname it “Dr. Copper” because of how reliably it has predicted past slowdowns.
Whether banks are getting stingier with loans. Banks have been tightening lending standards. Less available credit means less money moving through the economy, which can push prices down over time.
Long-term interest rates falling on their own. If the 10-year Treasury yield drops sharply while the Fed is holding rates steady, that’s the market quietly betting on a slower economy ahead.

Long-term interest rates falling on their own. If the 10-year Treasury yield drops sharply while the Fed is holding rates steady, that’s the market quietly betting on a slower economy ahead.

Regime 4: Recession (Where This Could All Be Heading)

It’s not a separate problem, it’s where this one ends up

A recession isn’t some unrelated disaster waiting to strike. It’s most likely how the current stagflation situation eventually resolves, one way or another. The likely trigger date: October 1, when food assistance (SNAP) benefits are cut for 42 million Americans, combined with weak company earnings expected around January 2027.

A recession isn’t some unrelated disaster waiting to strike. It’s most likely how the current stagflation situation eventually resolves, one way or another. The likely trigger date: October 1, when food assistance (SNAP) benefits get cut for 42 million Americans, combined with weak company earnings expected to show up around January 2027.

Path A: A “Stagflation” Recession — 60% likely

The economy shrinks, but prices stay stubbornly high (above 3%). This is the worst combination, because the Fed still can’t cut interest rates to help the economy without reigniting inflation. People with lower incomes get hit first and hardest, as they cut spending on everything except necessities. Higher earners feel it later, as job cuts eventually spread into white-collar industries too.

How we’ll know this is the one happening: Inflation stays above 3.5% even as the economy visibly shrinks. Discount retailers like Dollar General report disappointing sales around January 2027.

What tends to do well here: Short-term safe savings, gold and other real assets, healthcare companies (people still need medical care in a recession). What to avoid: long-term bonds and non-essential spending categories.

Path B” A “Deflation” Recession - 15% likely

This happens if the Iran conflict fully resolves and oil prices keep dropping. Cheaper energy could let inflation cool off fast, but if it cools off too fast alongside a weakening economy, you get the “falling prices are actually bad” scenario described in Regime 3. This is historically the harder trap to climb out of, just ask Japan.

How we’ll know this is the one happening: The Iran peace deal holds, oil drops below $70 a barrel, and inflation quickly falls toward 2%.

What tends to do well here: Long-term bonds (which gain value when rates fall), cash. What to avoid: gold and other inflation hedges, since the whole point of this scenario is prices falling, not rising.

What to actually do right now, before either one fully arrives

Keep some cash in reserve, earning interest. A recession often creates buying opportunities (cheaper stocks, cheaper assets). Having cash ready means you can act on those opportunities instead of watching them pass by.
Consider healthcare-related investments. When people lose their jobs, they often lose employer-sponsored health insurance and shift to government health programs. Companies that manage those programs tend to do better, not worse, in a recession.
Be cautious with companies that depend on tight-budget customers. Discount retailers whose customers rely heavily on food assistance are especially exposed to the October 1 benefit cuts.
Don’t wait for an official announcement. The official group that declares “yes, this is a recession” (the NBER) usually takes 6 to 12 months after a recession has already started to declare it official. By the time it’s officially confirmed, the best buying opportunities are often already gone.

The Timeline: What Happens and When

Think of this as a countdown of events already scheduled or expected:

July 18, 2026: New rules for stablecoins (a type of digital dollar) take effect. This makes it easier for companies like X to compete with regular banks for deposits, potentially pulling money out of smaller community banks.
October 1, 2026: Food assistance benefits get cut for 42 million Americans, all on the same day. This is when the financial squeeze on lower-income households becomes very visible in the data.
Late 2026: Possible first signs of community bank stress, as deposits flow out (see July 18 above) while those banks are also sitting on shaky commercial real estate loans.
January 2027: Discount retailers and casual dining chains report their holiday-quarter earnings. This is when the impact of the October SNAP cuts is expected to be clearly reflected in company results.
Sometime in 2027: If a recession has been happening, this is roughly when it gets the official stamp, 6 to 12 months after it actually began.

The short version: there’s roughly a 50-60% chance the economy tips into a real slowdown sometime around early 2027, and the warning signs are expected to appear well before any official announcement. Position yourself before the headline, not after it.

Aware Trade