Cooling U.S. inflation isn’t that simple: Even if oil prices fall, “Apples” are still getting more expensive.

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Oil prices are falling, but Apple is raising prices. This seemingly contradictory set of signals reveals that the issue of inflation in the United States is far more complex than it appears.

The U.S. Personal Consumption Expenditures (PCE) Index for May rose 4.1% year-on-year, reaching its highest level in three years—more than double the Federal Reserve's long-term target of 2%. Although global oil prices have recently retreated and are expected to bring the PCE index down to around 3.5% by the end of the year, the core PCE, which excludes energy, is still expected to remain at about 3.3%, indicating that inflationary pressures have deeply permeated all levels of the economy. Apple said it has never seen memory and data storage prices "rise so fast and so sharply," and has begun taking steps to increase the prices of its products.

This situation has left the Federal Reserve in a dilemma. "For both the Fed and the market, the problem is that inflation is far too high—far beyond its 2% target," said Chris Zaccerelli, Chief Investment Officer at Northlight Asset Management. The market generally expects that stubborn inflation will not only delay the timeline for rate cuts, but even raises the possibility of the Fed being forced to start raising rates again.

Oil prices are not the whole story of inflation

This spring, after the U.S. launched military strikes against Iran, global oil prices surged sharply and became a major driver of inflation. However, Heather Long, Chief Economist at Navy Federal Credit Union, pointed out, "The surge in inflation is not just an oil price story."

Official data confirms this view. The PCE index, the inflation metric most relied upon by the Fed, has risen from 2.9% at the end of last year to 4.1% in May this year. Even more noteworthy, core PCE—which excludes energy—climbed from 3.0% to 3.4%, marking a three-year high. This means that even if oil prices continue to decline, inflation will not dissipate quickly as a result.

Multiple factors overlap, inflation’s “stickiness” emerges

The stubbornness of this round of inflation stems from the combined effect of multiple factors.

The tariffs imposed in 2025 by the Trump administration have increased business costs, with some of the pressure already passed on to consumers through higher prices. The spillover effect of high oil prices has spread to broader economic sectors; the temporary blockade of the Strait of Hormuz has further pushed up prices of fertilizers and other key chemicals. Meanwhile, the resilient U.S. economy continues to support demand for goods and services, providing fertile ground for price increases.

In addition, the investment boom in artificial intelligence and data centers has triggered a surge in demand—and prices—for chips and memory, which has now been passed on to consumer electronics. Apple is a microcosm of this trend: faced with sharply rising memory and storage costs, the company has announced price hikes for products like iPhone and MacBook.

The Fed is in a dilemma, rate cut expectations under pressure

High inflation is shrinking the Federal Reserve’s policy space. Senior Fed officials and Wall Street economists predict that as oil prices retreat, the PCE index might drop to around 3.5% by year-end; but core PCE is expected to remain at a high level near 3.3%, making it difficult to quickly return to the target range.

Chris Zaccerelli warns that the current level of inflation has significantly delayed the outlook for rate cuts, and the market may even need to prepare for further rate hikes. For investors, this means the environment of high interest rates may persist for longer, and pressure on rate-sensitive assets will be hard to relieve in the short term.

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