‘We don't have inflation'? Five charts show the US economic reality of Trump's second term so far

Inflation, after falling to 2.3% in April 2025, rose to 4.2% in May amid the Iran war’s impact on oil prices; average US gasoline reached $4.32 per gallon in mid-October, nearly $1.30 above a year earlier. The economy added 181,000 jobs in 2025 versus 2.2 million in 2024, while unemployment remained just above 4%; the S&P 500 continued to rise, with economists citing AI investment and gains concentrated among wealthier households. The Fed raised rates by 0.25 percentage point in September, and 30-year mortgage rates rose from below 6% in February to above 7%.

Analysis

The investable signal is a shift from a demand-led disinflation trade toward a potential supply-shock/stagflation regime. That raises the bar for duration and rate-sensitive consumer exposure, but does not automatically justify a broad equity short: AI-related capex and concentrated index leadership can keep headline indices resilient even as household demand weakens. The key distinction is whether energy costs remain an acute shock or pass through into wages, services, and inflation expectations. In the next 1–3 months, monitor oil and gasoline persistence, core-services inflation, inflation expectations, and Fed language; a supply shock alone may not sustain tightening, while second-round effects would. Over 6–18 months, persistently high energy costs could pressure lower-income consumption and accelerate efficiency or substitution investment. The contrarian risk to an inflation trade is that reopening of the shipping route or a demand slowdown quickly unwinds oil and inflation premia; energy equities may also fail to track crude if disruption impairs volumes or raises operating costs. The article’s retrospective data should be independently checked against official releases before sizing positions, particularly the chronology and scope of the reported inflation and rate figures.

Key Decisions for Investors

• Prefer a staged relative-value position over a broad macro bet: long energy producers (e.g., XLE) versus consumer discretionary (e.g., XLY), adding only if crude remains elevated and consumer-facing earnings commentary weakens. Risk: reopening or demand destruction reverses the oil premium; exit if energy prices normalize and discretionary relative performance turns higher.
• Keep duration exposure tactical rather than adding outright Treasury shorts here. Persistent core inflation or a further hawkish Fed repricing would support reducing long-duration exposure; a sharp labor-market deterioration or falling oil would falsify that view and favor duration.
• Do not short the S&P 500 solely on household strain. Index resilience may persist if AI-linked capex and a narrow group of large constituents sustain earnings; broadened earnings downgrades or weaker guidance beyond consumer-sensitive sectors would be a stronger confirmation for index downside.
• Before increasing exposure, verify the official CPI components, oil benchmark and shipping status, inflation expectations, Fed pricing, and revisions to payrolls. A rapid oil retreat, stable core services, or renewed disinflation would invalidate the stagflation tilt.