Chaos, Politics & Instability: The Real CPI Driving the Business Cycle

What’s behind the numbers?

The fifth CPI print of this grand Jubilee Year tiptoed in with a dainty +0.1% MoM rise—shy of the +0.2% forecast and clearly not trying to make headlines. Year-on-year inflation strutted in at +2.4%, nailing expectations like a student who memorized just the summary slide, and edging up from April’s +2.3%. Energy played the deflation superhero again (cape and all), goods continued their emo phase in deflationary gloom, while food prices bounced back like a toddler on sugar. Services, meanwhile, took centre stage with their biggest monthly leap since last February—back when tariffs and immigration crackdowns were still just a twinkle in an executive order’s eye.

Core CPI tiptoed up just 0.1% in May—well below the predicted +0.3% and even softer than April’s +0.2%. On a YoY basis, it crept in at 2.8%, technically matching expectations while still clinging to its “lowest since March” trophy like a participation award. Core services, which make up a buffet-sized 76% of the index, took a breather, slipping from +2.73% to +2.70%. Meanwhile, core goods decided to surprise everyone by being inflationary for the second month in a row—because apparently, they missed the memo on disinflation. And for the trivia buffs: this marks the 60th consecutive month of rising core CPI. But no worries—nobody’s counting. Except economists. And investors. And central banks. And probably your grocery bill.

A glimmer of hope for the “inflation is totally over, we swear” crowd: Owners' Equivalent Rent—the inflation zombie that just won’t die—managed to rise only 4.2% year-on-year in May. That’s down a whole tenth from April’s 4.3%, making it the “coolest” reading since January 2022. So yes, inflation is clearly defeated... as long as you squint, tilt your head, and ignore rent, food, and reality.

Even less “encouraging” for the inflation-is-dead crowd: SuperCore CPI—aka core services minus housing, or what the Fed actually watches when it’s pretending to look busy—climbed to 2.86% year-on-year in May. That’s up from April’s 2.74% and right back to March levels, before the world got “tarrified” and everything started costing extra for the new ‘tariff tax’. So much for the victory lap.

May’s CPI report—the first full month of data since the world officially got ‘tarrified’—has confirmed what everyone with a grocery bill already knew: March's deflationary dip was just a statistical burp. And now, someone’s got to pick up the tab for the tariff tax—it's either the consumer or the guys making their stuff. Welcome to the Trump-Re-Flation era, where trade policy comes with a price tag and a punchline. While the ‘Manipulator in Chief’ and the ‘Central Banker in Chief’ high-five each other for “winning,” the composite of US inflation index keeps quietly doing laps—now up 3.28% year-on-year. That magical 2% target? Still as real as a unicorn riding a flying Fed spreadsheet.

US Umbrella inflation Index (Average of CPI; Core CPI; PPI; Core PPI; Core PCE, 1-year consumer inflation expectations)

Rather than clinging to the fairy tale that 2% inflation is just around the corner (before the end of the Jubilee Year—give or take a miracle), savvy investors, clearly more grounded than the army of PhDs at the Fed and on Wall Street, know better. Especially with that “most beautiful word in the English language” (tariffs, of course) still waiting to hit consumer wallets like a delayed punchline.

Anyone with a passing familiarity with base effects can do the math:

• To hit 2% by end-2025, CPI would need to tiptoe in at under 0.1% monthly—basically a statistical unicorn.

• If monthly prints creep up to 0.2% or more, we’re looking at year-end CPI anywhere between 2.6% and 5.5%.

In that case, the FED may have to sheepishly admit that easing policy during an inflationary boom wasn’t exactly a masterclass in central banking—unless the goal was to win the partisan policy limbo contest.

Savvy investors know inflation isn’t rocket science—it comes from shortages, strong demand, and fading trust in public institutions. So, when tariffs, trade wars, and U.S. imperial chest-thumping fuel all three, it’s a recipe for rising prices and collapsing confidence. If Trump’s policies trigger inflation or another warmongering misadventure, his support will vanish faster than a campaign promise.

At the end of the day, nobody needs a PhD in economics—or even a decent attention span—to grasp this: inflation’s three ugly heads (shortages, demand, and distrust) all feed off one thing—uncertainty. When investors and consumers can’t make heads or tails of government policy (or whether the people writing it are even awake), trust erodes faster than a campaign promise. And surprise, surprise—when confidence crumbles, inflation follows. So yes, rising policy chaos = rising CPI. It’s practically economic gravity—with more truth social posts.

US Economic Policy Uncertainty Index (blue line); US CPI YoY Change (red line).

At the end of the day, nobody needs a PhD in economics—or even a decent attention span—to grasp this: inflation’s three ugly heads (shortages, demand, and distrust) all feed off one thing—uncertainty. When investors and consumers can’t make heads or tails of government policy (or whether the people writing it are even awake), trust erodes faster than a campaign promise. And surprise, surprise—when confidence crumbles, inflation follows. So yes, rising policy chaos = rising CPI. It’s practically economic gravity—with more truth social posts.

US Economic Policy Uncertainty Index (blue line); US CPI YoY Change (red line).

In this kind of policy circus, where uncertainty reigns supreme, it doesn’t take an MBA to figure out that business owners will slam the brakes on hiring and capex. And when spending stalls and layoffs creep in, guess what follows? A nice spike in the misery index. So yes, rising uncertainty doesn’t just dent confidence—it eventually lands everyone in a full-blown economic hangover.

US Economic Policy Uncertainty Index (blue line); US Misery Index (red line).

As uncertainty and misery rise—and inflation proves stickier than ever—investors need to revisit which assets to hold and, more importantly, which to avoid in a chaos-driven business cycle. In times like these, it's no surprise that among the four asset classes in the Permanent Portfolio, contracts (bonds and cash) continue to underperform property (stocks and gold). After all, when trust in public institutions erodes, so does the value of the IOUs they issue. In this context, gold doesn't just shine—it outperforms both bonds and cash when uncertainty takes the wheel.

US Economic Policy Uncertainty Index (blue line); Relative Performance of Gold price in USD terms to Bloomberg US 1-3 Months Bills Index (red line).

Savvy investors know the drill: in a stickier-for-longer inflation environment and rising chaos, growth stocks flop—just look at the Nasdaq in 2022. The real signal? Gold outpacing bonds and breaking above its 7-year moving average. In this kind of market, it’s Dow over Nasdaq, energy producers over energy-hungry tech, and real assets over the empty promises of untrustworthy governments.

Upper panel: Gold to Bond ratio (blue line); 7-year moving average of the Gold to Bond ratio (red line); Lower Panel: Relative performance of S&P 500 energy sector to S&P 500 IT sector (yellow line).

In a sticky inflation environment—aka the "fun" part of the economic cycle where everyone’s miserable—it’s hardly shocking that consumer stocks take a hit. When budgets get squeezed, even the most loyal shoppers will gladly swap their overpriced, aristocratic ‘butt push up tights’ for, you know, actual food. So yes, maybe skip the retail darlings and stick to things people can’t eat their way out of among consumer related stocks.

US Economic Policy Uncertainty Index (blue line); Relative Performance of S&P 500 Consumer Staples Index to S&P 500 Consumer Discretionary Index (red line).

As consumers snap back to reality and start spending on what keeps them alive—rather than what looks good on Instagram—it’s no wonder they're flocking to Walmart. In a world where Americans across every income bracket are paying more and getting less, Walmart’s “everyday low prices” suddenly look like a luxury in themselves. So, it’s no surprise that the retail king of frugality keeps outshining the U.S. luxury sector. When uncertainty rises and wallets shrink, Walmart becomes less of a store—and more of a lifestyle.

US Economic Policy Uncertainty Index (blue line); Relative Performance of Walmart to S&P 500 Luxury Sector (red line).

The recent feud between the ‘Manipulator In Chief’ and his ‘Tech gig Rasputin’ isn’t about hurt feelings—it’s an AI turf war thinly veiled by headlines about EV subsidies. Never mind that Musk was demanding subsidy cuts just last July; the real drama traces back to Peter Thiel grooming J.D. Vance for power, from VC darling to senator to ‘Vice Premier In Chief’, all while pushing Curtis Yarvin’s “Dark Enlightenment” vision like it’s gospel. This isn’t chaos—it’s choreography. The PayPal Mafia isn't disrupting anymore; they’re consolidating. Yarvin himself showed up at Trump’s Coronation Ball on January 20th 2025—because every soft coup deserves a tuxedo. Later, he told Politico that Trump’s first term helped lobbyists more than voters and shrugged that Congress runs the country anyway. His fix? Put the Fed under White House control. Because why stop at monarchy when you can own the money printer too?

Before unpacking boxes at Number One Observatory Circle, J.D. Vance had already flashed his ideological credentials. On a 2021 podcast, he gave a casual shoutout to none other than Curtis Yarvin—yes, the monarchist blogger behind “Dark Enlightenment.” Vance even offered Trump some friendly advice: “Fire every single midlevel bureaucrat… replace them with our people.” So much for draining the swamp—apparently, the plan is to restaff it with Yarvin fanboys, enriching the PayPal Mafia, of course.

Vance didn’t climb the political ladder solo. With Peter Thiel bankrolling his venture into politics, and Elon Musk now bizarrely calling for Trump’s third impeachment, this sudden intra-MAGA drama feels less like a real feud and more like a tech-scripted transition plan. No need for tinfoil hats or Black Eye Club detours—the PayPal Mafia is very real, and so is the Dark Enlightenment playbook. If Trump was the battering ram, Vance may be the chosen architect. The only real mystery left is whether anyone realizes the next phase of the takeover is already underway, as the tech ‘Trojan Horses’ repopulate the Washington swamp.