This Red-Hot Inflation Reading Just Hit Its Highest Level Since November 2022. 3 Takeaways for Investors.

If there was any lingering hope that April's inflation surge was a one-off event, it was just wiped away. The Bureau of Labor Statistics recently reported that May's consumer inflation rate rose from 3.8% to a three-year high of 4.2%, led by soaring food and fuel prices. Even taking those two categories out of the equation, though, the nation's so-called "core" annualized consumer inflation rate still rose from April's 2.8% to 2.9% last month.

Industry and middlemen aren't faring any better either. The BLS went on to report last month's producer inflation rate reached 6.5% -- the highest level since November of 2022 -- while its core inflation figure grew from April's pace of 4.4% to 5.1% in May.

This is something investors can no longer ignore.

To this end, here are the top three takeaways to consider now that steep prices look like they're here to stay for a while.

1. Interest rate cuts are looking less and less likely

The odds of the previously expected rate cuts for later this year were already shrinking. May's inflation report just slammed the door on the prospect. According to interest rate futures data from the CME's Chicago Board of Trade, as it stands right now, investors don't realistically anticipate even a decent chance that the Federal Reserve will cut the federal funds rate until early next year. In fact, speculators are actually expecting modest interest rate increases beginning late this year.

2. Preservation of buying power is even more of a priority now

One of the key reasons for taking the risk of investing for growth is to outpace the adverse impact that inflation has on your dollars' buying power. And as long as they invested reasonably wisely, patient investors have usually been able to accomplish this goal without much fuss.

This task just got a whole lot tougher, though.

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While yields on safe instruments like government bonds typically remain well ahead of inflation, right now, they're not. Even the yield on ultra-long-term 30-year Treasuries is just under 5% at this time, with shorter-term paper sporting measurably lower yields. Investment-grade corporate bonds aren't offering a heck of a lot more either, with Aaa/AAA 30-year bond coupons measurably less than 6% right now (and those are taxable interest payments).

The point is, most investors are going to want to step up their efforts to protect their near-term and long-term buying power here. There's little margin for any shortfall.

3. Companies with resilient pricing power are poised to outperform

Finally, although most companies can fend off a bit of inflation for a while, recent price increases are proving sharp and persistent. Only outfits with true pricing power rooted in products or services that must be purchased are going to live up to expectations. This includes (some) commodities, although something simpler and more straightforward, like food companies, grocery stores, and utilities, might be easier to assess in this complicated market environment.

More discretionary and cyclical businesses -- yes, including technology -- are of course at the other end of this spectrum.

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