Kuttner on TAP: Get Ready for Trump-flation

There’s a version of the next four years where Donald Trump is convinced by advisers at Mar-a-Lago to do nothing, inherit a great economy, declare victory, and reap the benefits. But Trump is almost certainly too convinced of his own ideas to do that, and the various hangers-on in Trumpworld too ready for their own corrupt paydays to allow that to happen. So instead, the likely outcome is an inflation rebound.

How will Trump’s policies spike inflation? Let us count the ways.

As the Prospect has extensively reported, much of the increased cost to consumers since COVID has been the result of supply chain dysfunction and corporate price-rigging.

To the extent that supply concerns have eased and corporate pricing tricks and traps have been restrained, it is the result of Biden regulatory policies that will be ended by Trump. To the extent that Trump kills or suspends Biden’s several investment programs that were aimed at securing and managing supply chain spot shortages, that will also spike inflation.

A revived Federal Trade Commission and Justice Department Antitrust Division cracked down on predatory tactics by monopolies. The Department of Transportation—better late than never—restrained abusive airline pricing gimmicks. Executive orders began to reduce drug pricing. Biden orders forgave student debt. The Consumer Financial Protection Bureau has saved consumers from rigged prices on multiple fronts.

To the extent that Biden’s FTC and Justice Department have blocked abusive mergers, that has restrained price increases. This will end. One of the reasons why stock markets booked record one-day increases after Trump’s election was that Wall Street now expects a renewed merger boom, which will raise consumer prices.

Trump’s deportation policies will be hugely inflationary. In industries such as agriculture, construction, meatpacking, low-end manufacturing, nursing care, and home care, the workforce is heavily immigrant. In the wake of this fall’s hurricanes, there are already shortages of construction workers to rebuild. Deportations will increase those worker shortages, bidding up the cost of labor. That will be good for some non-migrant workers, but it will increase prices.

Global climate change will also increase prices. MAGA doesn’t believe in climate change, but that hasn’t stopped it from intensifying. As we have reported, many insurance companies have increased their premiums, in part for profit-taking but also because of losses from floods, fires, and storms. This will only worsen. So will the costs of hardening the electricity grid, which will cycle through to consumers in the form of higher utility bills. Likewise the costs of cleanups. The more labor scarcity, the more the cost.

The continuation of Trump’s tax cuts will increase the federal deficit. Trump has talked about offsetting program cuts, but he is already having second thoughts when it comes to the biggest-ticket items like Social Security. To the extent that he does follow through on program cuts, say to Medicare or child care or home care subsidies, consumers will experience those increased out-of-pocket costs as inflationary.

Within broad limits, increased deficits per se need not be inflationary. But the Fed thinks otherwise. If Trump’s budget includes large increases in the federal deficit, we can expect the Fed to cease cutting interest rates.

As Trump’s other policies increase the rate of inflation, that will also spook the Fed into tightening money. Higher interest rates not only slow the economy; they themselves are inflationary because they raise borrowing costs on things like mortgages and auto loans.

And I haven’t even mentioned Trump’s tariffs. The proposed 20 percent across-the-board increases would be massively inflationary: a 20 percent increase on the retail price of all imports and imported components. I’d be surprised if Trump follows through on that scale. He may be an economic illiterate, but his political advisers will surely point out the costs and risks. But there will very likely be some tariff hikes.

In short, inflation is almost certain to be far higher under Trump than it was under Biden. A smart Democratic Party would let the public know about that every single day. Live by the sword, perish by the sword.