The main concern of the Federal Reserve is that the inflation rate has gone up from the beginning of Trump’s term. In February of 2025, the Consumer Price Index, or CPI, the most widely used measure of inflation, saw average prices up 2.4% from a year earlier. But as of August 2026, average prices were up 3.4% from a year earlier, up about 1% since Trump’s second term began.

The increase in inflation has outpaced wage increases, so that the purchasing power of wages has gone down for five months in a row. This is feeding the so-called “affordability crisis” where more people are unable to make ends meet. To get by, credit card debt has risen every month for the last year. More and more people are working side gigs such as Uber or Lyft driving, street vending, etc.

The Fed is trying to bring down inflation by reducing borrowing and spending by businesses and consumers. A drop in total demand will tend to bring down the rate of inflation. A problem is that in most cases, this goes too far, and the economy ends up in a recession.

The Fed faces four obstacles to bringing down inflation by raising interest rates, because this policy does not address the fundamental reasons that inflation has been on the upswing during the second Trump administration.

The first cause of higher inflation was Trump’s trade war, with higher tariffs and import restrictions that began April 2, when he imposed higher tariffs on almost every country in the world, including some places where no humans live. While Trump hasn’t followed through on some tariffs, has made deals with some countries, and often had his tariffs ruled illegal by federal courts, including the U.S. Supreme court, the average tariff across all countries has gone from about 2.3% when he took office in January of 2025, to about 11% today, almost a five-fold increase. This can directly increase the price of imported consumer goods, as well as increase the price of goods made in the United States with imported parts. The Fed’s move on interest rates has no impact on tariffs.

A second big cause of rising inflation is the current war on Iran, which began on February 28, 2026, when the United States and Israel launched a massive attack using missiles and stealth bombers on the Iranian military and top leadership, including Supreme Leader Ali Khamenei and his family. Iran struck back, closing the strait of Hormuz, where about 20% of the world’s oil consumption passes through. Oil prices shot up from about $70 a barrel to as much as $120 a barrel, and it is back above $100 a barrel, or up about 50% after more than six months of war.

Because of this, gasoline, diesel fuel and other petroleum products also shot up in price. Not only did the raw material, oil, go up in price, but the “crack spread” or margin between the oil used and the price at the pump also went up, pushing oil company profits to record highs. The price of diesel fuel is at an all-time high of $6.40 a gallon (national average price), up almost 75% from a year ago.

While most households do not put diesel in their cars, the trucks that move the vast majority of goods in the United States do run on diesel, pushing up the cost of anything that has to be shipped. Farm and construction equipment also mainly run on diesel. Farmers are especially hard hit, with many of their crops affected by Trump’s trade war as other countries, especially China, are buying more from other countries and less from U.S. farmers. Prices of fertilizer are also rising because of the Iran war and tariffs.

Rising interest rates will not slow the war in Iran, but it does increase the cost of borrowing. Federal spending on interest on the U.S. government debt is about a trillion dollars a year and bigger than direct U.S. military spending.

A third cause of rising inflation is the AI (artificial intelligence) building boom of data centers. While much of the local opposition to these data centers is because of rising electricity prices and concerns over water supplies, the AI boom is also driving up the prices of semiconductors that are also used in cars and consumer electronics such as cellphones. Again, higher interest rates will not slow the AI race as U.S. companies try to outdo each other.

Even if the Fed did succeed in slowing down tech companies’ investment in AI, a slowdown in businesses’ spending on new buildings and equipment is one of the two most common triggers for a recession, the other being a sharp slowdown in construction of new homes and apartments.

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Average prices for the working class have risen even faster, up 4.4% from a year earlier. This means that real wages, or the purchasing power of wages for U.S. workers, have fallen for the second month in a row, and are now 0.8% less than a year ago. This was enough to bring the average worker back to their purchasing power in January 2025, right before Trump took office for his second term.

Trump keeps repeating how great the economy is, which is true for him and his billionaire buddies, who own most of U.S. stocks, with the S&P 500, a broad measure of the stock market, up 22% since Trump took office.

Unfortunately for working people, more price increases are on the horizon. Prices of key commodities used in production, such as diesel fuel, fertilizer and helium, have also spiked, as much of their production was shipped through the strait of Hormuz. This will lead to higher prices for goods that are moved, food, and semiconductors. A measure of these so-called “intermediate goods,” goods that are manufactured but used to make other goods, or not sold to consumers, was up 6% year over year in April, again foretelling higher inflation to come.

In another sign of economic distress, America’s Car-Mart, Inc., a seller of used cars and lender to car buyers with limited incomes and/or poorer credit, said that it was looking for an emergency loan. The company is also preparing for a bankruptcy filing. This is just another sign that workers have been forced to buy used cars as new car prices march ever higher.

Stocks fell across the board, with the broad S&P 500 falling more than 1.5%, while the technology-heavy NASDAQ sank almost 2%. The drop in stock prices was also fed by news of renewed military clashes in the U.S.-Israeli war on Iran, which boosted oil prices.

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That same day, the BEA also released a report on Personal Income and Outlays for April 2026. After-tax income, when adjusted for inflation, fell by 0.5%, the second month that income fell this year. While spending, also adjusted for inflation, rose by 0.1%, the fall in income meant the savings rate fell to only 2.6%, the lowest in four years.

The flip side of a lower average savings rate is the more people are borrowing more to make ends meet. According to the Federal Reserve Bank of New York, more than 13% of credit card borrowers are 90 days or more behind on their payments, the highest rate in 15 years, when the economy was still struggling to recover from the 2008 Great Financial Crisis.

More than 10% of student loans are also 90 days or more late on payments. Student loans make up the greatest amount of consumer borrowing – more than credit cards or auto loans. Auto loans were not immune, with more than 5% of auto loan borrowers 90 days or more behind on payments, the highest in more than 20 years.

Not surprisingly, late borrowers were most likely among low-income households, followed by middle-income, and high-income households having the lowest rate, at less than half that of low-income borrowers. People are being squeezed by higher interest rates, higher balances (more than 20% of credit card users have balances of over $10,000), and paychecks shrinking from inflation.

Personal income and spending were both squeezed by higher inflation. The Personal Consumption Expenditures or PCE inflation rate rose to 3.8% from a year ago. This is the highest rate of inflation by this measure in three years. The PCE is the inflation rate watched by the Federal Reserve. With this inflation rate higher than the Fed’s 2% target for five years in row and now rising with higher gasoline prices because of Trump’s war on Iran, the Fed’s next interest rate change might be to raise interest rates, seeking to slow the economy and lessen pressure for higher prices.

Workers are also being squeezed by the fact that a larger share of the economy is going to corporate profits, which mainly benefits the top 1% of households who own half of all corporate stocks. The profit share rose to 12.1%, the highest since 1950. At the same time, the labor share, paid to workers, sank to just 51% of income, the lowest since records started in 1947. This growing divide between labor and capital can explain why more and more people are struggling to make ends meet and taking on more and more debt, while the stock market, which is ultimately based on corporate profits, is hitting new record highs.

A big chunk of the increase in the share of income going to capital in the form of profits is because of tax changes, including the 2017 tax bill and the 2025 “big beautiful bill” that cut taxes for higher income households and businesses. Labor unions are also struggling, with barely 10% of all workers in union jobs, down from more than 30% in 1950. Cuts to social programs, such as food stamps and Medicaid are also putting downward pressure on wages.

Typically, a slowing economy would raise the unemployment rate. The oil price increase in 1973 contributed to a recession and higher unemployment, while at the same time inflation rose. Today, oil prices, gasoline, diesel and jet fuel made from oil, as well as helium and fertilizer that are by products or made from oil, are all on the rise. However despite the slowing economy and job growth, so far the unemployment rate has just crept up from 4.0% when Trump took office in 2025, to 4.4% in April 2026, the last month reported on. At the same time, more people have “dropped out” of the labor force, that is, they have given up on working or looking for work. The Labor Force Participation Rate has been going down from 62.5% in February 2025, the first full month of the Trump administration, to 61.8% in April 2026. If these folks had continued to look for work, the official unemployment rate would have been 5.3% in April, a much bigger jump from the beginning of the Trump administration.

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The increase in the PPI means that consumer prices will be heading even higher in the future. For example, the price of diesel fuel, used in trucking, farm and warehouse equipment, was up 12.6% in just one month, adding to the cost of food and almost all goods that are shipped by trucks. The wholesale cost of transport by truck rose 8.1% in April as compared to March. Air freight costs also rose, but by a “smaller” amount of 3.6% for the month.

Major companies such as Whirlpool, a maker of appliances, announced a 10% price increase in April, and another 4% to be imposed in July.

Parts of the PPI report also feed into the Personal Consumption Expenditure, or PCE, price report that is coming out May 28. The PCE price index is the inflation measure followed by the Federal Reserve Bank, which traditionally raises interest rates when inflation rises.

With inflation rising, bond prices are falling, since inflation erodes the fixed interest payments that bonds pay. This means that the interest rate on bonds is going up; for example, the ten-year U.S. Treasury bond before the war on Iran was 4.02%, and it is now 4.46%. The ten-year U.S. Treasury bond is a benchmark that impacts other loan interest rates. For example, the 30-year fixed rate mortgage was just below 6% right before the war started, is now at 6.45%. Rising mortgage interest rates mean larger loan payments, reducing even more the affordability of buying a home.

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The rising costs of energy drove the increase in prices, on the backs of higher fuel prices as a result of Trump’s war on Iran. Gasoline prices were up 28.4% over a year ago. Electricity rates were up 6.1% from a year ago.

These higher prices mean that the purchasing power of workers’ incomes, or what economists call real income, fell in April as compared to March, and also fell compared to a year ago. Using another measure of prices paid by workers, the CPI-W, real wages or hourly earnings fell 0.3% in April from March, and fell 0.2% as compared to a year ago.

There were also signs that higher fuel and energy prices are spreading to goods and services that use a lot of energy to produce. With diesel fuel prices up over 60% from a year ago according to the AAA (American Automobile Association), transportation costs are showing up in the higher prices for food, up 0.5% in April as compared to no increase in March. Airline fares have soared, up more than 20% as compared to April 2025, as jet fuel prices have almost doubled.

While economists often refer to the “core” rate of inflation, which takes out food and energy costs as they are more variable month to month, this means that the actual rate of inflation for lower and middle income households is actually greater than the headline (total) inflation, since those consumers spend more of their income on necessities like food, gasoline and electricity.

With Trump polling at all-time lows, with 70% of people disapproving of him on the economy, Congress is proposing to suspend the federal gasoline tax. However, the tax is only 18 cents a gallon, or about 4% of the current national average price. But with gasoline up more than 40% since the war started, this would at most offset 10% of the increase. Further, the gasoline tax is an excise tax that the seller pays, so there is no way to ensure that the gasoline sellers pass on the tax cut to drivers.

With no end in sight to the war that is blocking the flow of oil, gas, fertilizer, sulfur (used in industry) and helium (used in a lot of tech industries), higher prices are likely to spread to more and more goods and services.

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While the United States produces more diesel fuel than it consumes, the difference is exported. With prices of diesel fuel much higher in many countries, this can pull up the prices of diesel fuel here in the United States.

The price of diesel has not had much of an impact on consumer prices, which rose almost 1% in March over February and 3.3% from a year earlier. But many businesses use diesel fuel for their trucks, farm equipment and construction equipment. Big corporations have begun to increase their prices to try to offset this. For example, the fuel surcharge for UPS rose to 27%, up from 21% before the war started.

But smaller businesses, like independent truckers, are often not able to do this. This means that their margins and income are cut, or they drive less, again cutting their revenue. Small farmers are also feeling the squeeze, not only with diesel prices, but prices of fertilizer are also up.

These higher costs will trickle up to consumers. While there was scant evidence of this in March, some price increases are likely in April and even more after that. While a big part of Trump’s election campaign in 2024 was him saying he was going to fight inflation, his tariff increases that began on so-called “Liberation Day” in April 2025, and then the war on Iran, have already pushed the Consumer Price Index to the highest rate since Trump took office.

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The rise in prices was led by gasoline, up 21.2% in March. While the prices for consumer goods and services other than food and energy, or the so-called “core inflation rate” only ticked up 0.2% in March, the rise in fuel prices started to spill over into other goods and services. Airline fares, where jet fuel is a major cost, rose 2.7% in the month of March, and 14.9% from a year earlier.

This increase in prices and the rate of inflation follows the U.S.-Israeli war on Iran, launched in the last days of February. In response to the massive U.S.-Israeli bombings, with well over 10,000 targets, Iran has retaliated against U.S. bases and businesses in the Persian Gulf and Israel itself. In addition, Iran has taken control of the Straits of Hormuz, through which flowed about 30% of the world’s exported oil, and large amounts of natural gas, urea (used to make fertilizer), and helium, used in chip manufacturing and other high-tech goods like MRI machines.

With a relative ceasefire, Trump administration negotiators led by Vice President Vance are meeting with Iranian representatives for talks hosted by Pakistan. The flow of oil, fuels and chemicals is still just a trickle, mainly ships holding Iranian oil, which now fetch almost twice as much as before the war started because of the rise in the price of oil and the fact that the Trump administration lifted sanctions on their oil. Even though oil futures have dropped back down below $100 a barrel, this is still 50% higher than their pre-war prices. The purchase price of actual, or physical oil, is another $30 a barrel higher. Even worse, with the last shiploads of oil that made it out of the Persian Gulf unloading their oil at their destinations, the soaring price of oil will soon become a physical shortage of oil in more countries.

Not surprisingly, this surge in prices weighed on consumers’ confidence. The University of Michigan’s Sentiment Index fell to a record low of 47.6. This is the lowest in the survey’s 74-year history, lower than the 2008 financial crisis and the oil-price shock of 1979 after the revolution in Iran that ended the reign of the U.S.-backed Shah of Iran and the beginning of today’s Islamic Republic.

With prices soaring, more and more Americans who were living paycheck to paycheck are falling behind. One of the businesses benefitting from hard times are pawn shops, which reported more business in March. There are now corporate chains of pawn shops, whose stocks are at multi-year highs, in effect profiting from economic problems.

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San José, CA – The price of regular gasoline has soared a dollar a gallon on average since Trump ordered this country to war with Iran. According to the American Automobile Association or AAA, the average price has gone from $2.96 a gallon a month ago to $3.98 gallon on March 24, or more than 34%.

How high could they go? No one really knows, but according to my “Trump secretly loves California” theory, since Trump has brought the national price of gas closer where the California price was before the war started ($4.63), it is quite possible that $5 a gallon gasoline could be seen in gas stations across the country in the near future.

But gasoline prices are just the visible “tip of the iceberg” for consumer price inflation. Diesel prices are up 43% since the start of the war, even more in percentage terms than gasoline, and are now more than $5.35 a gallon on average nationwide. While very few individuals have cars that run on diesel, most trucks and farm equipment use diesel fuel. The rise in diesel prices will further squeeze smaller farmers and truckers, while the increase in costs will be showing up in food prices and the prices of almost all goods which are shipped to markets.

The cost of urea, the basic building block for nitrogen fertilizers, is also up 45% since the war started. Part of this is because the in response to the U.S.-Israeli attack and bombing campaign, most the major exporters of urea are either directly affected by the war (Saudi Arabia and Oman), or indirectly, as they (Egypt, China, Malaysia and Indonesia) import the natural and petroleum gas used in urea production from the Mideast. This will squeeze farmers even more, and some of the costs will pass through to higher food prices.

Finally, Qatar is a major producer and exporter of helium, which is a by-product of natural gas production. Helium is used in the production of MRI machines, production of semiconductors, and other industrial uses. Helium prices up 70 to 100%, will likely lead to shortages, depending on how long the war lasts.

While Trump has been saying from the start of the war, more than three weeks ago, that the war is almost over, the fact of the matter is that more than 5000 U.S. troops, both Marines and Army, are on the way to the Middle East, signaling another escalation of the war, with U.S. boots on the ground.

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While this inflation measure was lower than economists expected, the report should be taken with a large grain of salt. One of the reasons that inflation came in lower than expected is that it reported that there was basically no change in housing costs between September and November. Housing costs, including rents and estimated costs of home ownership, make up over a third of the CPI. This flatlining of housing costs typically only happens during a recession, and more likely reflected problems with the statistical methods used for this report.

One change that would also lower the inflation rate is that the Bureau of Labor Statistics, or BLS, that collects the data for the inflation report, removed the cost of long-term care insurance from the index. With premiums reported to have gone up 24% on average in 2024, this would tend to lower the index.

The report as a whole had a very large number of blank entries, partly because the October data wasn’t available. While inflation rates for specific goods were reported, other services – such as gardening and lawn care, which has many immigrant workers and was up 13.9% year over year in September – were not reported. One service that was reported that also has many immigrant workers was elder care, up 10.8%, possibly reflecting Trump mass deportation efforts that are hitting occupations with many immigrant workers.

Another under-reported service was insurance, including car insurance. Health insurance premiums were reported to be up only 0.6% in November, year over year, while in September they were up 4.2% from a year earlier, suggesting that these insurance premiums went down in October and November – something that virtually no one is seeing.

Last but not least, while many specific goods were down in price, such as eggs, many others were still rising at double digit rates. Beef was up 15.8%, while coffee was up even more, with prices 18.8% higher than a year ago. Home energy prices were up 6.9% from a year ago, even faster than in September, where the year over year rise was 5.1%. This was in part due to the artificial intelligence data centers being built, which require massive amounts of electricity, with more of it coming from new or reactivated nuclear power plants, which are the most expensive way to make electricity in the United States.

Finally, because of late start, with data collection only beginning mid-month, at the end of the government partial shutdown, this report included Black Friday sales, unlike normal November inflation reports, which would have pulled down prices reported and lowered the inflation rate.

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The day after Trump announced tariffs on Canada and Mexico, on February 1, a Canadian utility with U.S. customers announced that their rates would be rising with the new tariffs. Outdoing this was Nucor, the largest producer of steel in the United States, which has raised the price of its steel four times since January. The company plans to get ahead of Trump’s planned 25% tariffs on aluminum and steel, which are to take affect March 12, even though their steel in made in the United States and not subject to tariffs. They are using the same playbook as in 2018, during the first Trump administration. When Trump put 25% tariffs on imports of steel, domestic steel producers raised their prices an average of 22%, boosting profits but not production.

Last but not least, the price of gasoline is about to begin its seasonal rise. On average, the price of gas hits a low in February, and then starts to rise during the spring and summer. While this is not the fault of any of Trump’s policies, it certainly goes against his pledge to bring down the price of gasoline.

Candidate Trump pledged to bring down prices as president. This was a big part of his victory last November, as voters turned away from the Democratic Party candidates, who were deaf to working people’s complaints about inflation. But like a true politician, Trump is turning away from this goal and actually acting to make it worse with reciprocal tariffs on all countries to go into effect in April.

Treasury Secretary Scott Bessent, one of some 13 billionaires helping billionaire Trump to manage the federal government, recently said, with a smiling face, that Trump’s actions were “disinflationary.” What he meant by this is that Trump’s DOGE chief, Elon Musk was taking an axe to federal payrolls, cutting or putting on leave some 30,000 and threatening 2 million others with layoffs.

The spreading uncertainty and pain is already reducing spending, which will tend to limit price rises at the cost of disrupting the lives of tens of thousands of civil servants. Trump is stripping away the mask from the time when two-faced politicians used to assure the people while carrying out the wishes of billionaires. But now with the billionaires in charge, there is no more pretense, so they smile while wielding a chainsaw to our jobs and pocketbook.

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The S&P Purchasing Managers Index fell in February to 51.6, just above the 50.0 line where the economy is neither growing nor shrinking. The services part of the index actually dropped below 50, to 49.7, showing that the service sector was starting to slow. The “Trump Bump” of economic and financial enthusiasm has ended after just a month in office, as concern rose among businesses about the impact of his tariffs and deportations.

A separate report, on the sale of existing homes by the National Association of Realtors, saw sales fall by almost 5% in January, as compared to December of 2024. Interest rates have been rising. Trump’s proposed tariffs have led to greater expectations of higher inflation. Mortgage interest rates topped 7% in January, making home loans more expensive to pay off. While higher interest rates affect the demand for homes, as Trump’s deportation raids begin to reduce the number of construction workers, the supply of new homes will fall, pushing prices up even more and making them even less affordable.

The University of Michigan’s Consumer Sentiment Index fell almost 10%, to 64.7 in February, down from 71.7 in January. A big part of this was the rise in expected inflation over the next year, from 3.3% in January to 4.3% in February.

The largest outbreak of stagflation in the United States was in 1973 and 1974, when inflation and unemployment rose. Typically, these indicators move in opposite directions. The recession and rising inflation showed the post-World War II economic boom in the United States was over, and that the relative decline of the U.S. economy had begun. Today’s stagflation is a sign that the U.S. economic decline is accelerating. While Trump was largely elected because of widespread dissatisfaction with the economy, especially inflation, in fact, his policies were going to accelerate both the economy’s decline and rising prices.

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While natural disasters such as the fires in southern California and the winter storms in the Midwest and Northeast were seen as pushing sales down 0.2%, the actual report was much worse. The so-called “Trump Bump” of optimism seen in the stock market and retail sales at the end of 2024 had completely fizzled out. One reason for this was that more and more households were stretched because of higher prices and have had to borrow more and more. Delinquencies, or late payments on loans, rose across all categories except for student loans, showing that more and more people had taken on too much debt to try to keep up with rising prices.

Higher inflation and falling sales in January do not foretell a good year for the economy. While Trump promised lower prices “on day one,” he is now blaming all the economic problems on President Biden. While this may have some truth since most of January was still under the Biden administration, going forward, the economic polices adopted in Washington DC will be Trump’s responsibility.

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The increase in inflation was led by eggs, up more than 15% in one month. Fuel oil, used for heating in the Northeast, saw prices go up 6.2% from December. Other categories leading the way included gasoline (up 1.8%), natural gas for utilities (up 1.8%), used cars and vehicles (up 2.2%), and transportation services (up 1.8%).

The rise in the inflation rate was foreshadowed by an earlier report on consumer confidence for the first part of February, which saw expected inflation in the year ahead jump from 3.3% in January to 4.3% in February, a very large one percent leap. Expectations matter ,because consumers may try to buy more now to avoid future price increases, which causes prices to rise even more.

A big reason Trump won the election was that people were fed up with higher prices, and he promised to lower prices “on day one.” But in fact, Trump has done nothing to lower prices, instead spending time attacking diversity initiatives and health care for trans folks, and threatening to attack Panama.

Even worse from an inflation point of view, Trump has put 10% tariffs on all imports from China. In his first term Trump raised tariffs on China by a larger percentage, but it was on intermediate goods used to make final products like aluminum, wood panels, etc.

Trump’s latest tariff also include consumer products like cell phones, computers, electronics, clothing and shoes. Now a whole range of consumer goods will be going up in price as import businesses, which pay the tariff, pass on the cost to the consumer. But experience has shown that not only imports go up in price. When Trump put 25% tariffs on all steel imports in his first term, U.S. made steel went up 22% in price.

The Trump administration has also been stepping up the deportation of undocumented immigrants. This will reduce the number of workers, especially in agriculture, food processing, construction and elder care. These labor shortages will drive up the cost of labor and/or reduce the amount of food, homes, and services. Both of these will lead to higher prices.

The fact of the matter is that while Trump campaigned on “lowering prices on day one,” he actually has been busy raising tariffs, or taxes on imports, and deporting immigrants, both of which will actually raise prices.

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The increase in the broad CPI from 2.4% in September to 2.6% in October was mainly driven by rising housing costs, which were up 4.9% on a year-over-year basis. While the overall increase in the CPI has fallen from 9% in 2022 to 2.6%, the drop in housing inflation has been much smaller, from 8.8% in 2022 to 4.9% last month, which is still more than half the peak.

The cost of housing is actually greater than what the CPI counts, as it doesn’t include the cost of insuring a home, which is rising at an 8.8% annual rate (and much faster in states such as Florida and California due to the increase in costs of natural disasters).

Inflation in housing costs may stop falling or even start to rise again if Trump carries out his pledge to deport undocumented immigrants. 13% of all construction workers are undocumented, one of the highest rates of all industries. If many of them are deported, a shortage of construction workers will drive up the costs of housing.

While Trump was elected largely on people’s dissatisfaction with the economy, in particular higher inflation, Trumps pledges of mass deportations and higher tariffs, or taxes on imports, could actually end up raising prices and increasing inflation.

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Mainstream newspapers have been running articles for weeks and months about how workers’ feelings about the economy don’t match the improving economic data. But these articles are talking about the fall in inflation, which did go down to a 2.9% increase in average prices over the past year, the lowest since April of 2021. And while wages have been outpacing prices recently, the average number of hours has fallen as the labor market has been weakening and the unemployment rate has risen. Put it all together and workers did lose ground again in July of 2024.

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