‘I love the inflation,’ Trump says. Americans beg to differ
Donald Trump “loves” inflation. Most American households would probably beg loudly to differ.
Trump’s reaction to the highest US inflation number in more than three years was strange, and his reasoning was premature at best.
Following the release of the latest inflation data for the world’s largest economy US Consumer Price Index increases at an annual rate of 4.2 percent This rate was 3.8 percent in April. In May, Trump was asked if he was concerned.
“No, I love it,” he said. “The numbers were great. You know what I really like? I love inflation. Do you know why? Because as soon as this war (the war in the Middle East) is over…”
He said the US had received “millions of barrels of oil” from the Strait of Hormuz, which is why oil was at US$85 per barrel. (It’s actually $93 per barrel).
“I like inflation figures because of what they’re talking about,” he later said. New York PostHe said his earlier comments were taken out of context.
‘The numbers were amazing. You know what I actually love? ‘I love inflation.’
Donald Trump
“The numbers will be extraordinary because it seems that even though we are in a war, the numbers are much lower than expected, and when we come out of the war, the numbers will be even lower than they were before the war started.”
In January, a month before Trump launched an attack on Iran, the inflation rate was 2.4 percent and oil was trading below $70 a barrel.
In a post on Truth Social, Trump wrote that the “wildly successful” passage of commercial ships through the Strait of Hormuz was due to the US controlling the strait, not Iran.
“Their army was defeated and their economy was lost. It’s all over for Iran,” he shared.
He declared the war won nearly 40 times at last count; But in the midst of the so-called ceasefire, none of the US, Israel or Iran ceased fire.
Despite Trump’s claim that the US passed 22 ships through the passage “last night”, traffic in the strait remains far behind the average of 138 ships that passed through it every day before the war, carrying about 20 percent of the world’s oil supply.
So far, the full impact of the war on oil prices has been blunted by the release of up to 400 million barrels of oil held in strategic reserves, including America’s, and oil that was already at sea before the conflict.
These reserves are being depleted – the US strategic reserve is back to levels last seen in 1983, when it was still being built up – and so the ability to keep some sort of constraint on prices depends on the end of the war and the full reopening of the strait before it is depleted.
As with the war in the Middle East, the Trump administration’s policies have caused too much harm for little (if any) gain.
Oil industry executives have said the price could rise to $150 a barrel or more if the war continues, and it could take a year for global supply chains to return to normal once the war is over.
Contrary to what Trump said, the inflation numbers were not as good or better than expected. in line with expectationsIt could have been worse.
Most of the increase in inflation (more than 60 percent) is due to the war in the Middle East; This war increased the average price of diesel from $2.93 to $3.64 per gallon in the United States, and diesel prices from $3.52 to $5.30 per gallon.
Core inflation, which excludes energy and food prices, increased by 0.2 percent compared to April and is at 2.9 percent; This may indicate that inflation outside these segments is not that high.
Milder price increases and even some declines in food, housing, clothing and consumer goods may also indicate that price increases from Trump’s tariffs are now being carried through and, perhaps more importantly, that the war’s impact on fuel prices is not being reflected in supply chains and the economy more broadly.
The U.S. Supreme Court’s striking down of Trump’s “Emancipation Day” tariffs may have softened the pass-through of tariff-related price increases (although he has recently announced new ones), and if the war drags on, it is almost inevitable that rising energy costs will begin to trickle into transportation costs for industries and final prices for consumers.
Meanwhile, Trump’s pet inflation is eroding the living standards of most Americans.
Real wages decreased by 0.7 percent on an annual basis in May, accelerating after the 0.3 percent decline in April. Eighteen months of wage gains have evaporated with the biggest fall in real average hourly earnings in three and a half years.
Trump can boast all he wants about his war “successes” and the fact that major increases in oil and gasoline prices are less than they should be, but US households are increasingly squeezed by the war and tariffs.
Trump, of course, has always pointed to the stock market as a barometer of his success.
Wall Street’s S&P 500 Index fell 1.6 percent overnight in response to CPI data and Trump’s threat of further attacks on Iran. The tech-focused Nasdaq index fell 2 percent.
The U.S. stock market has fallen 4.5 percent since hitting its last record on June 2 as the battle progresses, raising doubts about the sustainability of wildly inflated valuations of companies developing artificial intelligence.
The latest inflation data won’t change the Fed. He does not provide evidence that inflation is slowing, suggesting that the new president, Kevin Warsh, may need to implement the rate cuts sought by Trump, who appointed him.
But the gap between headline inflation and core inflation will provide pause for thought at next week’s Fed rate-setting meeting for those who want to ward off the threat of high inflation with an early interest rate hike.
There was no expectation in financial markets that there would be any change to the Fed’s policy rate next week, so the data doesn’t really change anything at this point, but markets — clearly less optimistic than Trump — have responded to the inflation data by continuing to price in at least one rate hike before the end of the year.
The decline in America’s oil reserves may have helped reduce the increase in the inflation rate than it might have been. It also helped Trump fight another not-so-successful war.
US trade data this week showed Trade deficit was more or less stable in AprilIt decreased by 1.2 percent compared to March and reached 55.9 billion dollars. The $6.4 billion increase in oil exports more than offset the $2.2 billion increase in AI-related computer imports and the $1.7 billion increase in semiconductor imports.
If not for the war-induced record level of oil exports, this deficit would have increased significantly and exceeded the average monthly trade deficit of US$72 billion under Joe Biden. To date, the average budget deficit during Trump’s second term as president (monthly figures include seasonal effects) has been around $70 billion.
After all those tariffs from Trump’s trade war on everyone, which his administration justified by claiming unfair trade, America’s trading partners were robbing it! – There was no significant change in the current account deficit.
As with the war in the Middle East, the Trump administration’s policies have inflicted much harm on America, Americans, and their perceived enemies for little, if any, gain.
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Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and deputy editor of the Business Spectator website and associate editor and senior columnist at The Australian.Connect via email.
