The Numbers

April's Consumer Price Index hit 3.8% year-over-year, according to the Bureau of Labor Statistics. That's the highest since May 2023.

Wholesale prices posted their biggest annual jump since 2022. Real wages — what your paycheck actually buys — dropped 0.3% after inflation adjustment, according to RSM's chief economist Joe Brusuelas.

RSM's forecast: inflation peaks at or above 4.5% this year. Kalshi prediction market traders agree, putting the odds of 4.5%+ inflation this year at more than 65%.

What Stagflation Actually Means

Stagflation is the economic nightmare scenario — inflation running hot and unemployment climbing at the same time. It happened in the 1970s. It was brutal. It took years and a punishing recession under Fed Chair Paul Volcker to kill it.

Kellogg economist Phillip Braun put it bluntly: "Stagflation is when the economy is stagnant and inflation is rampant. The sum of two negatives equals three negatives."

Braun, who was actively downplaying stagflation risk back in 2022, is NOT downplaying it now. "Today's environment is more like the 1970s than four years ago," he told Kellogg Insight. "The environment is ripe for stagflation with this oil-price shock."

Two Causes. Both Real.

Mainstream coverage is picking a lane — either blame Trump's tariffs or blame the Iran war. The honest answer is: both matter.

The war in Iran and effective closure of the Strait of Hormuz has hammered energy markets. Energy, gasoline, transportation, and food prices are all climbing because global oil supply is tightening. RSM's Brusuelas says this supply shock is "the primary catalyst" for rising inflation right now.

That's a real external shock. It's not Trump's fault the Strait of Hormuz is disrupted.

But tariffs aren't innocent bystanders either. The Stanford Institute for Economic Policy Research notes that Trump's tariff regime is "trickling down to consumers" and adding price pressure on top of an already stressed supply chain. Higher import costs get passed to you at the register.

The Atlantic's framing — that this inflation is "almost entirely" Trump's policy choices — is overreach. It ignores the Middle East supply shock driving energy prices. But dismissing tariff effects as irrelevant would be equally dishonest.

The Fed Is Caught in a Trap

The Federal Reserve has a dual mandate: stable prices AND maximum employment. In normal times, those goals move together. In stagflation, they pull in opposite directions.

Raise rates to fight inflation? You slow growth and push unemployment higher. Cut rates to protect jobs? You pour gasoline on inflation.

According to Stanford's SIEPR, the FOMC already showed open internal conflict — one voting member dissented in mid-December, the most in years. That's a crew arguing about which iceberg to hit.

RSM's Brusuelas says what might have been a tough call in June has now become a two-sided risk to both sides of the Fed's mandate simultaneously. Raymond James chief economist Eugenio Aleman warned back in March: "If there's a recession and inflation goes up, then there's a potential for a short period of stagflation."

He called it manageable. That was March. A lot has changed.

What Prediction Markets Are Saying

Kalshi traders put stagflation odds at nearly 40% — up from 11% roughly three months ago. A soft landing, the best-case scenario where the economy cools without tipping into recession, now sits at just 21%. It was at 55% in early March.

Polymarket, a separate prediction platform, is more optimistic — 22% stagflation, 32% soft landing. The divergence between platforms matters less than the direction: every market is moving toward pessimism.

Note: CNBC has a commercial relationship with Kalshi, including a minority investment. Factor that in when reading their Kalshi-sourced coverage.

What This Means For You

If RSM's forecast is right — inflation at 4.5% and nominal wages growing around 3.5% — that's a 1% real wage loss for the average worker. Your paycheck buys less.

GDP growth forecasts have already been slashed. RSM cut its 2025 GDP forecast from 2.4% to 1.7%, with risk of further deterioration.

Kellogg's Braun recommends moving toward safe assets and planning a conservative budget.

The political blame game is going to intensify as midterms approach. Stanford's SIEPR says affordability will be "a top concern for consumers" heading into the November elections. Both parties will try to own the narrative.

The CPI, unemployment, and Fed actions will reveal what's actually happening — regardless of who's on TV claiming credit or dodging blame.