President Donald Trump Claims "Prices Are Dropping Fast," but Trumpflation Data Tells a Different Story -- and That's Potentially Terrible News for Stocks

Although the stock market tends to rise over multidecade periods, the annualized gains for the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) have been higher under President Donald Trump than under most presidents since the late 1890s.

A confluence of factors has worked wonders for Wall Street with Trump in the White House, including the evolution of artificial intelligence (AI), better-than-expected corporate earnings, and record S&P 500 share buybacks. Record highs for all three major indexes since early June prompted the president to declare that "the stock market is fantastic."

Trumpflation is becoming a broad-based economic concern. Image source: Official White House Photo by Daniel Torok.

While the Dow, S&P 500, and Nasdaq Composite have, thus far, climbed the proverbial wall of worry on Wall Street, headwinds are undeniably mounting for equities. Perhaps no concern is greater than that of inflation.

Although President Trump told the press that "prices are dropping fast" on Aug. 11, all important pricing data concerning Trumpflation (inflation that's specifically driven by the president's policies) tells a completely different story -- and it's not the best news for the high-flying stock market.

Headline inflation is dropping, but this doesn't tell the most important story

In an expanding economy, a modest level of inflation is perfectly normal. If the economy is firing on all cylinders, businesses are going to possess some degree of pricing power over their goods and services. Even the Federal Reserve targets a 2% long-term inflation rate, not 0%, because it recognizes that modestly rising prices are healthy for a growing economy.

Trouble can arise for the U.S. economy and stock market when the trailing 12-month (TTM) inflation rate deviates too far from the central bank's long-term target of 2%.

Trump: The country is doing well, prices are dropping fast, Iran is going absolutely fine, we control the Strait of Hormuz, and things are going great for our country. pic.twitter.com/XDUh6U08vP

— Acyn (@Acyn) August 12, 2026

Since President Trump's second term began, two of his policies have put upward pressure on TTM inflation: tariffs and the Iran war.

Trump and his administration have enacted several rounds of sweeping global tariffs, which are designed to protect American manufacturing jobs and allow U.S. products to be more price-competitive with those brought in from overseas. But adding duties to select unfinished goods can increase domestic manufacturing costs that are then passed on to consumers.

The more glaring source of inflation has been the Trump-led Iran war. Shortly after the president approved military operations against Iran on Feb. 28, the latter closed the Strait of Hormuz to virtually all maritime traffic. This action essentially halted the daily flow of 20 million barrels of petroleum liquids, sending fuel prices soaring.

Between February and May, TTM inflation catapulted from a modest 2.4% to a three-year high of 4.2%.

The partial silver lining for consumers is that headline inflation is dropping. Peace talks between the U.S. and Iran caused crude oil prices to plunge from their Iran war highs, leading to modest relief at the fuel pump. In June and July, headline inflation fell to 3.5% and 3.4%, respectively.

But headline inflation isn't telling the complete story. Based on one of the Federal Reserve's favorite inflation metrics, Trumpflation is digging in its heels.

Image source: Getty Images.

Consumer prices aren't going anywhere, thanks in part to Trumpflation

According to Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs and provides economists with a cleaner view of long-term price trends, prices aren't "dropping fast." In fact, they've hardly dropped at all.

After Core PCE inched to a nearly three-year high of 3.4% in May, it eased back to 3.3% in June. According to estimates from the Federal Reserve Bank of Cleveland's Inflation Nowcasting tool (as of Aug. 21), Core PCE is projected to hold firm at roughly 3.3% in July and August.

The stickiness of consumer prices, sans energy and food costs, suggests that the Fed's nightmare scenario has occurred. Namely, that Trumpflation has entrenched itself in the broader economy. What had been an energy supply issue has evolved into a broad-based concern.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

— Charlie Bilello (@charliebilello) July 30, 2026

For example, shutting down the Strait of Hormuz impacts much more than just fuel prices. Select companies have been forced to reroute shipments, adjust their supply chains, or alter their transportation altogether. These adjustments are costly and are expected to be passed on to consumers.

Additionally, petroleum-based products, such as plastics and synthetic polymers, have increased in price since the start of the Iran war. Businesses have the choice of absorbing these higher expenses and hurting their margins or passing these costs on to their customers.

The price stickiness of Core PCE suggests that Trumpflation will become a long-term nuisance for consumers, the Fed, and the stock market. With the 30-year Treasury bond yield recently soaring to a 19-year high, the message is clear that the bond market expects Fed Chair Kevin Warsh and the Federal Open Market Committee to eventually raise rates.

The prospect of persistently elevated inflation and potentially higher interest rates is terrible news for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. All three indexes have been driven to new heights by the AI infrastructure build-out, which has been fueled in part by debt financing. If it becomes costlier to fund the AI data center build-out, a historically expensive stock market may end up paying the price.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.