Contrary to popular belief, recent electricity price hikes are not yet driven by AI demand. Instead, they reflect a system that had already become less reliable due to the retirement of dispatchable coal power and increased dependence on intermittent renewables. The grid was already tight before the current demand wave hit.

Recent inflation was primarily driven by fiscal spending, not the bank-lending credit booms of the 1970s. The Fed’s main tool—raising interest rates—is designed to curb bank lending. This creates a mismatch where the Fed is slowing the private sector to counteract a problem created by the public sector.

While tariffs affect goods prices, immigration controls are reducing the labor supply, particularly in the service sector. This creates upward wage and price pressure on services, a subtle but significant contributor to overall inflation that is difficult to isolate in real-time data.

Contrary to conventional wisdom, re-accelerating inflation can be a positive for stocks. It indicates that corporations have regained pricing power, which boosts earnings growth. This improved earnings outlook can justify a lower equity risk premium, allowing for higher stock valuations.

Contrary to common belief, the home goods sector is facing a more challenging period now than during the 2008 recession. The massive pull-forward of demand during the pandemic created an artificially high peak, resulting in a deeper and more prolonged subsequent trough that is harder for businesses to navigate.

When the prevailing narrative, supported by Fed actions, is that the economy will 'run hot,' it becomes a self-fulfilling prophecy. Consumers and institutions alter their behavior by borrowing more and buying hard assets, which in turn fuels actual inflation.

Inflationary pressure (P) is a function of money supply (n, molecules), money velocity (T, temperature), and the economy's productive capacity (V, volume). This system is held together by institutional trust (R, the constant). This physics analogy provides a comprehensive framework for diagnosing economic pressures.

Despite Japan breaking its deflationary cycle, the Bank of Japan is hesitant to raise rates. The current inflation is primarily attributed to a weak yen and supply-side factors like energy costs, not robust consumer demand. With real consumption still below pre-COVID levels, the central bank remains cautious.

Robert Kaplan cautions against dismissing inflation risks. Many businesses are still absorbing tariff costs or working through pre-tariff inventory. He believes the full price impact will be passed on to consumers in 2026, potentially keeping inflation stickier than markets currently expect.