Trumpflation, the inflation tied to President Donald Trump’s tariffs and the Iran war, has entered a more entrenched phase. Core inflation held near 3.3% through the summer even as headline prices cooled sharply, new data shows.
That gap between falling headline prices and stubborn core inflation is the real story. It suggests Trumpflation has spread beyond the gas pump and settled into the broader US economy.
Trumpflation’s Two-Front Inflation Problem
Trump reinstated tariffs in July under Section 301 of the Trade Act, months after a Supreme Court defeat. Businesses have passed the higher costs of imported materials on to shoppers.
Iran closed the Strait of Hormuz in late February, cutting off roughly 20 million barrels of daily oil traffic. That is about a fifth of the world’s crude oil supply.
Diesel prices hit an all-time high of $6.50 a gallon in September, according to data cited by Barchart. Roughly a third of the world’s fertilizer supply also transits the strait, pushing up crop and produce costs.
The stickiness shows up in Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge. It excludes volatile food and energy costs.
Macro strategist Jim Bianco has noted that core PCE has held above the Fed’s 2% target for 65 straight months. That streak, he argues, shows markets are missing the bigger story by fixating on oil.
Why It Matters for Markets
Fed Chair Kevin Warsh’s Federal Open Market Committee (FOMC) raised interest rates a quarter point on Sept. 16 anyway. Entrenched inflation typically takes a prolonged hiking cycle to unwind, not a single move.
That is a problem for a stock market trading near its richest valuation since the dot-com bubble. The gauge is the Shiller price-to-earnings ratio. Wall Street’s AI-driven rally has largely priced in steady rate relief ahead.
If Trumpflation keeps forcing the Fed’s hand instead, that bet could unravel. Investors banking on cheaper money may need to rethink how long the rally can last. Whether Warsh’s Fed sees it that way may become clear at its next meeting.
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