The U.S. economy is on the verge of a new and possibly more severe inflation wave. While inflation from the 2021-2022 period has not fully subsided, recent policy changes under former President Donald Trump are setting the stage for another surge in price increases. If left unchecked, these policies could trigger an economic crisis with global repercussions.
Trump’s economic policies aim to bring manufacturing back to the U.S., but the country’s labor shortage remains a significant obstacle. Without sufficient workers, production costs will rise, pushing up the prices of goods and services. This labor shortage, coupled with Trump’s aggressive economic agenda, is expected to act as a "super catalyst" for inflation.
Rising Prices and Policy Challenges
Recent data from the U.S. Labor Department shows that the Consumer Price Index (CPI) increased by 0.5% in January, bringing the annual inflation rate to 3.0%, the highest since August 2023. Core inflation, which excludes food and energy, rose 0.4% monthly and 3.3% annually—well above the Federal Reserve’s 2% target.
Food and energy prices are rising at an alarming rate. Egg prices, for example, surged 15.2% in January alone, marking the biggest jump since 2015. Over the past year, egg prices have increased by 36.8%, with further hikes expected. Many supermarket items have quietly risen by over 50% in the last six months, adding to consumer concerns.
Despite these troubling trends, the U.S. government has yet to implement effective measures to curb rising prices. If inflation continues unchecked, it could lead to widespread economic instability.
Trump’s Policies and Their Impact on Inflation
One of the biggest concerns is Trump’s approach to the Federal Reserve. The Fed’s independence has long been considered crucial to economic stability, but Trump has repeatedly criticized its leadership and policies. He has pressured the Fed to cut interest rates, arguing that lower rates would stimulate economic growth and support his trade policies. However, cutting rates in a high-inflation environment could have disastrous effects, further fueling inflation rather than controlling it.
Trump has also indicated he may replace Fed Chair Jerome Powell, which could lead to a shift toward more politically driven monetary policies. A weaker Fed could mean lower interest rates at a time when inflation is already rising, exacerbating the economic challenges ahead.
Trade Wars and Supply Chain Disruptions
Trump’s aggressive trade policies are another key factor that could drive inflation higher. His administration has already imposed steep tariffs on steel, aluminum, and other imports, significantly increasing costs for American businesses and consumers. History has shown that such tariffs often lead to higher prices, as companies pass the increased costs on to consumers.
In some cases, past tariffs have resulted in price hikes almost identical to the tax itself. For example, washing machine prices jumped 18.2% within three months of tariffs being imposed, directly impacting consumer spending. The latest round of tariffs could have similar effects, making everyday goods even more expensive for American households.
Beyond tariffs, Trump's push for "de-globalization" is also expected to drive inflation higher. By forcing companies to move production back to the U.S., businesses will face significantly higher costs due to increased wages, infrastructure expenses, and supply chain inefficiencies. Many American firms are unprepared for this transition, meaning consumers will ultimately bear the financial burden.
Labor Shortages and Wage Inflation
The U.S. labor market is already struggling with shortages, and Trump’s restrictive immigration policies could make the situation worse. Industries such as agriculture, construction, and hospitality rely heavily on immigrant workers. If labor supply decreases due to stricter immigration controls, businesses will have to raise wages to attract workers, further contributing to inflation.
While Trump argues that reducing immigration will benefit American workers, the reality is that it could lead to even higher production costs and consumer prices. Many investors are already concerned about the economic uncertainty created by such unpredictable policies, which could slow investment and further strain the economy.
A Perfect Storm for Inflation
If these factors continue to unfold, the U.S. could face an inflation crisis worse than the 2021-2022 period. Several economic pressures are converging:
- Weakened Federal Reserve Independence → More political influence, potential rate cuts despite high inflation
- Escalating Trade Wars → Higher costs for imported goods, supply chain disruptions
- Labor Shortages and Rising Wages → Increased production costs, leading to price hikes
Together, these factors could drive the U.S. into a prolonged period of stagflation—high inflation combined with low economic growth. This scenario would not only harm American households but could also shake global financial markets, creating ripple effects worldwide.
