Inflation appeared nearly defeated just a few months ago, but price hikes started accelerating again, led in particular by rising egg prices and fuel costs. A nation that has grown weary of inflation has turned its hopes to President Donald Trump to help fix its affordability crisis.

But Trump, who had campaigned on bringing prices down on Day One of his presidency, has instead focused his economic policy thus far on tariffs – also known as higher taxes. Tariffs are paid by American importers, who typically pass those costs onto retailers, who, in turn, jack up the prices that consumers end up paying.

Fearful that Trump’s tariffs will only exacerbate inflation, Americans are already beginning to sour on Trump’s economic plan.

“The public’s fears have soared in just the last two weeks showing the blizzard of changes coming from the president’s desk have spilled over the line between pro-growth into the realm of pro-inflation,” said Chris Rupkey, chief economist at FWDBonds, in a note to investors Sunday. “Once inflation expectations start moving higher it is only a matter of time before actual inflation takes off.”

The University of Michigan’s latest survey, released Friday, showed that US consumer sentiment declined in February for the second consecutive month, falling by a steep 10% from January. The survey found that Americans are losing confidence in the economy, driven primarily by worries over Trump’s tariffs potentially boosting inflation.

A new CNN poll released last Thursday similarly showed pessimism on the rise because of prices: Nearly two-thirds of US adults nationwide, 62%, said they feel Trump isn’t doing enough to address inflation.

Last week, investors grew fearful that the weakening consumer sentiment could lead to a pullback in Americans’ shopping habits. The stock market had its worst week of Trump’s presidency – the Dow lost 1,200 points over the course of Thursday and Friday – though it was poised to rebound somewhat Monday.

Walmart warned last week that consumers’ negativity about the economy would weigh on sales this coming year. That’s a potential problem for the economy: Consumer spending makes up more than two-thirds of America’s gross domestic product.

Trump can’t shoulder much if any of the blame for inflation. Not just yet, anyway. The most recent consumer inflation report showed prices rose 0.5% last month compared to December — the fastest monthly increase since August 2023. Trump was president for just 11 ½ of the 31 days covered in the report.

But inflation is becoming Trump’s problem, and consumers’ fears for a reignited inflation crisis threaten to bring the honeymoon period for Trump’s second term to an abrupt end. And if consumers rein in their spending, that could lead the economy – currently nowhere close to a recession – into some problems.

“If the consumer balks at the higher prices coming their way, the economy could collapse in a hurry,” Rupkey said. “Bet on it.”

More tariffs could be on their way
That could be particularly true if Trump follows through with his massive tariffs threats that could begin early next month.

Trump has already imposed a 10% across-the-board tariff on Chinese goods coming into the United States. Tariffs are aimed at raising revenue, bringing foreign countries to the negotiating table, narrowing the trade gap and restoring American manufacturing.

Apple, facing expensive Chinese tariffs, made a substantial commitment Monday morning to invest $500 billion in US facilities over the next four years that could help it bypass some of those burdens.

But not every company can make those kinds of commitments – particularly if they have expensive legacy operations in former free trade zones, or if they make products overseas that can’t easily be made in the United States.

Early next month, the Trump administration is set to impose delayed tariffs on Canada and Mexico, ending the policy of free trade that he continued during his first term, when he signed the US-Mexico-Canada Agreement that he championed.

The 25% across-the-board tariffs (and 10% on Canadian energy), if they go into effect, threaten to raise the prices on cars, lumber, fuel, produce and many other goods. And both Canada and Mexico have threatened to retaliate against America with tariffs of their own, potentially hurting US industry.

Meanwhile, expanded steel and aluminum tariffs are set to go into effect in a few weeks. And the Trump administration has floated reciprocal tariffs on autos, lumber, pharmaceuticals, microchips and potentially some other products, matching dollar-for-dollar what other countries charge the United States. That new policy remains under review and could go into effect as soon as April 2, Trump has promised.

If Trump makes good on his most severe tariff threats – across-the-board tariffs on all manner of goods, the policy threatens to widen America’s rich-poor divide, said Michael Pearce, deputy chief US economist at Oxford Economics. Because the tariffs would be placed on goods indiscriminately, it would boost the cost of food, shelter, clothing and other necessities that would make it harder for the people who can afford it least to change their purchasing behavior.

“Because low-income consumers spend a disproportionate share of their income on non-discretionary goods, the increased consumer prices due to tariffs will weigh more on them,” Pearce said in a recent report. “That will reinforce the trend of a bifurcated US consumer, with spending by high-income households continuing to grow at a rapid pace while low-income consumers struggle.”

Microchips are in practically everything now, and they have the potential to raise prices on much more than phones and computers – cars, refrigerators, thermostats, and many other household items could become more expensive.

Lumber in particular could exacerbate one of the most persistent causes of inflation: the stuck housing market. The United States doesn’t have enough housing supply to meet demand, and raising prices on a key structural component for homebuilding could raise building costs.

Trump’s plan
Trump, for his part, has acknowledged that inflation remains a problem. But he has deflected blame to former President Joe Biden.

“Inflation is back,” Trump said last week in an interview with Fox News’ Sean Hannity. “I had nothing to do with it. These people have – have run the country. They spent money like nobody has ever spent.”

Economists disagree about why, exactly, inflation surged after Biden became president before coming back down to near-normal levels. But prices have remained stubbornly high as bird flu boosted egg prices at the fastest rate in 10 years last month and a combination of slumping demand and sanctions on Russia and Iran continued to raise fuel prices. Prices were up across the board last month, though – not just in those volatile and hard-to-control categories like food and fuel.

The president and his advisers have spelled out a plan to lower prices for Americans, which includes a combination of tax cuts, deregulation of energy and cutting government spending – mostly in the form of Elon Musk’s Department of Government Efficiency.

However, tax cuts would almost certainly increase US borrowing, because tariffs and cuts to government spending probably cannot replace all the revenue America would lose from cutting taxes.

Oil and gas deregulation has been met with skepticism from the energy industry, because fuel demand is in a slump, and drilling for more oil and gas may not be profitable.

And returning savings from government cost cutting directly to taxpayers, as Trump has proposed, could itself reignite inflation, because consumers tend to spend money when you hand it to them. Kevin Hassett, an economic adviser to Trump, denied that last week, arguing taxpayers would pad their savings with stimulus checks.

So Trump has a plan to combat high prices. But it’s a problematic solution that could be undone by tariffs.

If it doesn’t work, Trump’s favorability could erode. It already has.


https://edition.cnn.com/2025/02/24/economy/trump-inflation-tariffs/index.html