The persistent dissatisfaction of Americans due to inflation significantly contributed to Donald Trump’s win in the presidential election earlier this month.

But will Trump’s strategies help ease inflation, or could they make matters worse?

According to the final Forbes/HarrisX national poll released the Monday before the election, 36% of those surveyed identified rising prices and inflation as their primary concern, outpacing all other issues. Furthermore, a different Gallup poll revealed that 54% of registered voters believed Trump was more capable of managing the economy, whereas only 45% felt the same about Harris.

In essence, voters perceived Trump as a candidate for change, potentially able to tackle high consumer prices, noted economist Bernard Yaros from Oxford Economics in a message to clients.

With Trump poised to assume office again in January, let’s explore the state of inflation and the predictions of economic experts on its future trajectory.

Understanding Inflation in Simple Terms

Inflation refers to the increase in consumer prices over a certain timeframe. Economists usually analyze the average price changes within a wide range of goods and services, like the Labor Department’s consumer price index, which reflects typical American purchases.

To gauge the impact on average price changes, economists assign different weights to various products based on their share of total consumer spending.

Distinction Between Inflation and Prices

Inflation measures the rate at which prices change, usually assessed over a year, which differs significantly from the actual prices consumers face at grocery stores or for car insurance.

Since mid-2022, inflation has been gradually slowing down due to the resolution of COVID-19-related product shortages, decreased consumer demand following a spending surge after the pandemic, and slower wage growth amid a larger labor supply. Additionally, the Federal Reserve’s substantial interest rate increases have also contributed to moderating inflation, leading to higher borrowing costs that have prompted consumers and businesses to cut back on purchases.

By September, the Federal Reserve’s favored annual inflation measure stood at 2.1%, down from 7% in March 2022 and just slightly above the target rate of 2%. The “core” inflation rate, which excludes volatile food and energy prices, was at 2.7%, down from a peak of 5.6%.

However, even as the annual inflation rate declines, consumers continue to feel the burden of higher prices compared to pre-inflation levels in early 2021. Essential goods like food, rent, and gasoline have seen greater price increases than the average inflation rate, significantly impacting household budgets, according to Yaros.

For instance, grocery prices rose by only 1.1% in October compared to the previous year, but they were nearly 22% higher than in January 2021, versus an overall CPI increase of 20%. Similarly, rent increased by 23.4%, and gasoline prices jumped 27.7%.

Lower-income households are obliged to spend a larger portion of their budgets on essential items instead of non-essential goods, leading many voters to still feel financially strained, despite the slowing rate of consumer price increases, Yaros reported.

What Can We Expect for Inflation in 2025?

Current projections indicate that inflation may continue to decline towards the Federal Reserve’s 2% target by the end of next year as household spending and wage growth continue to moderate. However, leading economists are warning that Trump’s trade and immigration policies could keep inflation at elevated levels through 2025 or beyond.

Trump has proposed imposing 60% tariffs on imports from China and 10% to 20% tariffs on goods from other countries, which would represent a significant increase from those he implemented during his previous term, aimed at encouraging U.S. manufacturing.

Many economists believe he may not go through with such drastic tariffs. Goldman Sachs predicts he would likely impose a 20 percentage point increase in tariffs on Chinese imports and some added duties on automobile shipments.

If this occurs, the Fed’s preferred core inflation metric could drop from 2.7% in September to 2.4% by the end of 2025, though this would still exceed Goldman’s estimate of 2.1% in the absence of tariffs.

Meanwhile, Bank of America and Nomura foresee a more pronounced impact, expecting inflation to remain between 2.5% and 3% next year instead of approaching the Fed’s 2% goal.

These forecasts consider various factors that could lessen the impact of tariffs on prices. Some U.S. retailers and manufacturers might choose to absorb the tariffs through reduced profits rather than passing the costs to consumers. Companies may also shift their sourcing to countries with lower tariffs. Additionally, a decline in imports could bolster the dollar, leading to decreased import prices when converted from foreign currencies, mitigating some tariff impacts.

Does Immigration Affect Pricing?

Trump has also committed to deporting millions of undocumented immigrants and reinstating policies that require asylum seekers to remain in Mexico while their cases are adjudicated. According to Goldman, net immigration could drop to about 750,000 annually, down from 1.75 million.

Recently, there has been an influx of immigrants, which contrasts with approximately 1 million immigrants who arrived before the pandemic.

Over the last few years, the surge in immigration has helped ease the labor shortages that arose during the pandemic, slowing down wage increases and inflation. If immigration were to be restricted again, it could lead to challenges for employers in finding workers, resulting in potential increases in wages and prices, particularly in sectors that heavily rely on foreign labor, according to economists.

For instance, according to Farmworker Justice, a non-profit organization dedicated to supporting migrant farm workers, immigrants make up 68% of agricultural workers, and 44% of these individuals do not have permanent legal status.

Goldman mentioned that the effect of a crackdown on immigration on inflation would likely be minor. However, Barclays noted that the impact could be considerable, without providing specific details.

What will oil prices look like in 2025?

The primary approach that Trump has advocated to lower prices involves increasing oil production on federal land, according to Oxford. While this strategy could bring down gasoline prices, it would not impact the core inflation metric that excludes food and energy prices.

Energy and food costs tend to be more volatile due to fluctuations in global commodities like oil and wheat. The Federal Reserve prefers to monitor more stable price changes that reflect the dynamics of consumer and business demand, which can be influenced by interest rates.

Currently, U.S. oil production has reached a record high, with prices at $69 per barrel, marking a nearly four-year low.

Will prices ever decrease again?

Consumer prices are currently escalating at a slower pace; however, it’s rare for average consumer prices to drop. As the population and economy continue to grow, demand tends to support higher prices. A significant decrease in prices is known as deflation, which indicates economic weakness and can lead to a self-perpetuating cycle: consumers delay purchases in anticipation of lower prices, leading to reduced demand and economic growth, thereby further depressing prices.

As the supply chain disruptions caused by COVID have started to clear up, the prices of certain goods that spiked at the beginning of the health crisis – such as furniture, appliances, and used cars – have seen declines over the past few years, though they remain significantly higher than before the pandemic. Oil and gasoline prices have also dropped due to decreased global demand and higher production levels.

On the other hand, the cost of certain essentials, like groceries and rent, continues to rise but at a reduced rate, partly due to strong consumer demand.