Inflation Was Already Stuck Before the War Started · Daily Briefing

Personal Stakes

Personal Stakes · Macro Brief

Meanwhile, WTI crude punched back above $100 intraday as only seven vessels have transited the Strait since the ceasefire. The Saudi East-West pipeline lost 700,000 bpd from a pumping station strike. Private credit gates are spreading. The pre-war baseline is worse than anyone wanted.

February's core PCE price index rose 0.37% month-over-month and 3.0% year-over-year, with the six-month annualized rate at 3.4%, the highest since June 2024. Personal income fell 0.1% against expectations of a 0.3% gain, while spending rose 0.5% and the savings rate dropped to 4.0%.

Only seven vessels have passed through the Strait of Hormuz since the ceasefire took effect: six bulk cargo carriers and one Chinese-owned tanker. UAE senior oil official Sultan Al Jaber denounced the Strait as still closed, saying conditional passage is "control by another name".

Saudi Arabia confirmed a 700,000 bpd throughput loss on the East-West pipeline from a pumping station strike, the single most important rerouting offset to the Hormuz stoppage. Iran's Supreme Leader Khamenei stated they will bring the management of the Strait of Hormuz "to a new stage".

Carlyle joined the growing list of private credit firms imposing limits on redemptions. Q4 2025 GDP was revised down to +0.5% quarter-over-quarter annualized versus +0.7% expected.

Here's the thing about February's inflation data: it captures a world that no longer exists. No Hormuz blockade. And core PCE was already running at 3.0% year-over-year. That's the 60th consecutive month above the Fed's 2% target. Five years.

The short-term trend is worse. The three-month annualized rate hit 4.4%, the highest since March 2024. If you're the Fed, you're looking at an inflation problem that was accelerating before the oil shock even entered the picture.

The surprise was where the heat came from. Core goods rose 0.84% month-over-month, or 10.6% annualized, the largest monthly increase since January 2022. The 12-month core goods run rate of 2.3% is the highest since 1991 if you exclude the pandemic distortion years. And the wedge between CPI goods (mild) and PCE goods (very high) traces to the "computer software and accessories" category, suggesting AI buildout rather than tariffs is driving the surge.

Services, by contrast, were well-behaved. Core PCE services excluding housing rose just 0.22% monthly, with the 12-month change at 3.2%, near the cycle low, and shelter running below the 2016-19 run rate.

So the inflation story is: services are cooperating, goods are not, and the reason goods are not cooperating is that every company in America is buying AI software.

Personal income fell 0.1% month-over-month in February versus the +0.3% economists expected, while spending rose 0.5%. The savings rate dropped to 4.0%.

Read that again. Income down. Spending up. Savings shrinking. That math only works for so long. Consumers are funding their current lifestyle by depleting the buffer that protects them from the next bad thing.

Seven vessels have transited since the ceasefire, and six of them were bulk cargo carriers. Sultan Al Jaber put it plainly: conditional passage is not passage.

The backup plan is failing too. Saudi Arabia's East-West pipeline, the single most important rerouting offset to the Hormuz stoppage, lost 700,000 bpd from a pumping station strike. Khamenei is promising to bring Strait management "to a new stage". Eurasia Group expects oil to stay above $80 a barrel this year even if hostilities end. That's the optimistic scenario.

Carlyle has joined the growing list of private credit firms imposing limits on redemptions. When one fund gates, investors in similar funds rush to redeem before their fund gates too.

Signal:

The S&P 500 completed a 6-day winning streak with a 6%+ gain. Historically, this pattern has preceded positive 3-month returns with a median gain of nearly 11%.

The S&P 500 equal-weighted index sits on its rising trendline at 18.2x forward P/E. Hard to call the broad market overextended when the average stock looks reasonable.

US corporate profit margins surged to a record 13.9% in Q4 2025, with corporate profits rising $246.9 billion. Companies are passing costs through. That's good for earnings, less good for the inflation picture.

Central bank holdings at the NY Fed have fallen to the lowest level since 2012 in the wake of the Iran war. Foreign central banks are quietly reducing dollar exposure.

84-month-plus auto loans hit a record 22.9% of new-car financing, with average monthly payments at a record $773. Consumers aren't buying cars anymore. They're subscribing to them.

New-vehicle days supply hit 73 in March, a five-year high, with vehicles above $70,000 sitting at nearly 88 days. Sub-$30,000 new vehicles now represent just 13% of inventory, down 60% since 2021. The industry builds for the customer it wants, not the customer it has.

Noise:

Q4 2025 GDP revised down to +0.5%, with real final sales to private domestic purchasers revised down to 1.8%, a 0.6 percentage point drop from the first estimate. Ugly, but this is old data from a world before the war.

Initial jobless claims rose to 219K versus 203K prior, with the largest increases in NJ, OR, and CA. One week doesn't make a trend, and continuing claims actually fell.

The 10-year yield appears to have a hard ceiling at 4.4%, with policymakers intervening every time it's been tested. That's yield curve control without saying the words.

Weekend ceasefire talks. Both Tehran and Washington are raising stakes ahead of negotiations. Khamenei's "new stage" language and the pipeline strikes suggest Iran is negotiating from a position of leverage.

S&P Global Mobility forecasts a reduction of 800,000 to 900,000 light-vehicle sales globally in 2026 due to the Iran conflict's effects on oil prices, supply chains, and consumer confidence. Watch dealer incentive data and fleet order cancellations for early confirmation.

**Mexico auto exports to the U.S.

Private credit redemption queues. Carlyle gating means the contagion has reached the largest names. Watch for forced asset sales, which would reprice the underlying loans and potentially spill into public credit markets.

I believe the inflation picture is worse than the market is pricing, because the February data captured a pre-war economy that was already running too hot on goods, and the oil shock hasn't shown up yet.

On oil, I think $80 is the floor for the year even in a peace scenario. What would flip that: a credible OPEC+ supply surge combined with verified Hormuz reopening and pipeline repair. The pipeline damage alone takes weeks to fix. Until then, the supply math doesn't work.

What would change my mind: a sharp rebound in wage growth in the March jobs report, suggesting February income was a one-month anomaly rather than the start of a squeeze. But even then, you'd need wages growing faster than inflation, and inflation just accelerated.

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