President Donald Trump Claims Costs Are "All Coming Down Now," but the Evolution of Trumpflation Appears to Be Having the Opposite Effect

Despite June headline inflation easing (headline TTM inflation cited falling to 3.5% after a spike to 4.2% in May), core PCE remains sticky—falling only to 3.3% in June from 3.4%—with forecasts at 3.31% (July) and 3.36% (August). The article argues Trump-driven inflation is becoming entrenched via reimposed broad tariffs (10%–12.5% on 80+ countries after reimplementation post-court) and the Iran war’s Strait of Hormuz disruption, which is also lifting transport, fertilizer, and petrochemical costs. It warns that if the Fed is forced to raise rates to fight above-target inflation, borrowing costs could pressure debt-financed AI data center build-outs and weigh on a highly valued equities market.

Analysis

The market is likely underpricing the difference between headline disinflation and core persistence. If core stays in the low-3% area while growth re-accelerates nominally, the first casualty is not broad equities immediately but duration-sensitive leadership: high-multiple AI names and any balance-sheet-funded capex story. That makes NVDA more vulnerable to valuation compression than to any near-term demand shock; the trade is about discount rates, not unit growth.

Second-order effects matter more than the initial inflation print. Tariffs and rerouted shipping paths tend to bleed into freight, packaging, and imported goods with a lag of 1-3 months, so the margin hit shows up first in retailers and other low gross-margin distributors like TGT. If inflation remains sticky into late Q3, the Fed’s reaction function shifts from "look through" to "keep restrictive," which would pressure credit-sensitive sectors and slow the AI data-center buildout that has been financing-sensitive at the margin.

The contrarian view is that the headline inflation relief can still dominate if energy stays contained and labor cools faster than expected; in that case, the market may already be over-discounting a re-tightening cycle. The key falsifier is a clean rollover in core PCE toward sub-3% on a 3-month annualized basis and a sustained break lower in 10Y yields; absent that, rate-sensitive growth and import-heavy retailers remain the vulnerable side over the next 1-3 months, with structural pressure persisting 6-18 months if policy uncertainty keeps supply chains inefficient.

Key Decisions for Investors

• Short NVDA into the next core PCE/CPI cluster via an at-the-money put spread or a small outright short; thesis is multiple compression from sticky yields, not a fundamental demand collapse. Falsify if 10Y Treasury yields break below 4.0% and stay there for 2+ weeks, or if management commentary signals no slowdown in data-center orders.
• Initiate a relative-value short TGT vs long XLP or short TGT outright for 1-3 months; tariffs and freight rerouting should hit gross margin and traffic before the company can reprice enough to offset it. Cover if comp trends or gross margin guide above consensus for the next quarter.
• Buy NFLX on dips as a defensive consumer-spend substitute, preferably via a 2-3 month call spread rather than stock; if households trade down from travel and dining, streaming is one of the cheaper elasticities left. Exit if churn or ad-tier monetization weakens in the next earnings update.
• Set an alert on 10Y yields and core PCE 3-month annualized run-rate; if core does not roll under ~3.0% by the next two prints, add to short-duration exposure and reduce any long growth beta.
• If you need a cleaner macro hedge, pair long TLT against short NVDA for the next 1-3 months; this expresses the view that sticky inflation caps duration-sensitive tech multiples even if headline inflation keeps easing.