The cure for high prices is supposed to be high prices.

The logic’s sound: If you charge too much, consumers will balk and you’ll either lower your prices or you’ll go out of business.

Of course, that’s an oversimplification. It needs a ceteris paribus caveat. Most aphorisms only hold with all else equal, and all else is never equal. Prices were higher (a lot higher) post-pandemic and consumers kept right on buying. Here we are in 2025 and there’s still no sign of demand destruction, or at least not in the US, and not until Friday’s lackluster retail sales readout.

Without demand destruction, the Fed’s going to have a very difficult time wrestling consumer price growth the rest of the way down to 2%. The implacable nature of underlying inflation was on full display in the latest CPI update.

The updated figure above gives you a sense of where things are headed if the MoM prints don’t cool off.

If headline price growth (i.e., what consumers actually feel, as opposed to any number of “refined” metrics referenced by policymakers, who prefer to measure inflation by excluding things people need most like food, energy and shelter) were to run 4% again, that’d be bang on with what Americans have experienced since the (extraordinarily ill-timed) adoption of flexible average inflation targeting (FAIT), which the Fed instituted on the eve of the worst inflation outbreak in a generation.

“[The] Fed lacks inflation credibility,” BofA’s Michael Hartnett remarked, in his latest, noting that since the introduction of FAIT, headline 12-month price growth has averaged 4.3% in the US. (Mission accomplished! No one worries about deflation anymore in America.)

In the same note, Hartnett called this week’s CPI overshoot a “blessing in disguise” for asset prices. Quicker price growth “means Trump in the coming months has to go ‘small’ not ‘big’ on tariffs and immigration to avoid fanning a second wave of inflation,” he wrote.

This debate gets really circular, really fast, though: One big driver of the consumption impulse keeping inflation sticky is the wealth effect from higher stock prices. If it’s demand destruction you’re after, the best way to get there might be a stock crash.

Suffice to say Trump isn’t the sort to countenance an equity drawdown on the notion that the accompanying disinflation impulse — and likely Fed cuts — would free him up to wage a more aggressive trade war.

Despite sticky inflation and what most observers still describe as a woefully parlous fiscal outlook for the US, Hartnett said 5% on the long bond’s likely to be a multi-year peak. “We’re bond buyers,” he wrote, adding that the “impact of inflation, tariffs and immigration (big or small) will be more negative than positive for the US consumer and labor market H1 2025.”