Trumpflation Is Here, and You’re About to Pay For It

Economists expected the PPI to rise by just 0.2 percent in July, so a rate over four times as much was a genuine shock, and stocks opened lower reflecting this downside surprise before doing their normal routine of rejecting all objective reality in favor of its endless up only march driven entirely by gargantuan AI capital expenditures. Yesterday, Treasury Secretary Scott Bessent floated a larger 0.5 percent cut to the Fed Funds Rate in September, but this PPI data and the bond market’s reaction is making that much more difficult to do. Short-term yields for five-year Treasuries and shorter are all up over one percent as I write this, demonstrating how the smartest money in the world is quite literally betting on Trumpflation.

The benign CPI numbers earlier this week were not as good as they looked, as falling gas prices helped bring it down. Services inflation was up, and Core CPI, the Fed’s preferred measure of inflation, not the headline CPI figure every media outlet runs with, rose to 3.1 percent, a modest surprise against expectations of a 3 percent rise. The Fed is targeting a 2 percent inflation rate, meaning that even the overall good news of the CPI report this week is not good enough to get us out of the woods.

And now the PPI is giving many investors and economists pause, because it proves that Trump’s Maoist economic policy is hitting our economy. Businesses are trying to contain the fallout within their balance sheets, but the big jump in PPI strongly suggests that is impossible. If General Motors is taking a 35 percent hit to its net income because of tariffs, then it is inevitable that they will stop taking those losses themselves and will pass it on to their consumers. For smaller businesses, this dynamic should happen even faster because their margins are even tighter.

This split between the CPI and the PPI is a great example of why Jerome Powell and most other economic policymakers do not want to lower interest rates yet. All basic laws of economics tell us that Trump’s tariffs will lead to slower growth and higher inflation like Goldman Sachs’ chief economist Trump wants fired said this week, but the economy is vast and complex, and it takes time for brand-new dynamics to fully take root. When he first instituted his tariffs, there were plenty of car commercials advertising tariff-free pricing because companies stocked up on inventory to a truly historic degree in the first quarter, which enabled them to sell products without a surcharge and gave them time to eat some of these mounting tariff costs themselves.

But today’s PPI report makes it clear that businesses cannot keep shielding consumers from Trump’s tariffs forever. At some point, it will be more profitable for businesses to lose business with higher prices than selling goods at the same price with thinner margins, and the PPI suggests that day is near. Trumpflation is real, it’s here, and over the next few quarters, it is increasingly likely that you will have to pay for it.