Iran War Threatens US Bull Market with Persistent Trumpflation

The US economy is facing an unexpected threat to its bull market: Trumpflation. The term refers to inflationary pressure linked to policies and economic disruptions during President Donald Trump's presidency, with the Iran war now adding another major source of price pressure.

The Strait of Hormuz disruption has caused energy prices to jump sharply, with oil prices rising more than 70% within weeks. This increase in energy prices pushed overall inflation higher, reaching its highest level in three years at 4.2%. The Federal Reserve's long-term target is about 2%, making this increase a major concern for policymakers.

The Fed's Cleveland Inflation Nowcasting tool expects headline inflation to fall further, but the outlook for core PCE is less encouraging. Core PCE reached its highest level since October 2023 at 3.4% in May, and while it has improved slightly, it remains a major concern.

If core inflation remains high even as energy prices cool, the Iran war may be creating longer-lasting inflation across the economy. Companies are changing how they move goods due to supply chain disruptions, leading to higher transportation costs that can eventually reach consumers through higher prices for goods and services.