On his first day in office, President Donald Trump issued a directive requiring federal agencies to identify solutions to one of Americans’ most pressing economic challenges: inflation.

“I will instruct every member of my cabinet to harness the extensive resources at their command to combat what has been unprecedented inflation and swiftly reduce costs and prices,” Trump stated during his inauguration speech.

His emphatic remarks underscored Trump’s intent to promptly respond to a historic surge in consumer prices following the pandemic – a pivotal reason many voters shifted away from former President Joe Biden, opting for Trump instead of former Vice President Kamala Harris.

Details on Trump’s strategy to combat inflation have been sparse. However, officials from his administration indicated that they would facilitate more energy drilling on federal lands to help decrease oil and gasoline prices.

“We will drill, baby, drill,” Trump reiterated in his inaugural address, echoing a familiar campaign slogan.

The memorandum from Trump directs federal agencies to undertake a 30-day assessment on how to lower costs in areas such as housing, healthcare, food, energy, and home appliances, and explore ways to boost workforce participation, as reported by The Associated Press.

Is Trump capable of bringing down consumer prices? And what approaches might he choose?

Aside from promoting increased oil production, economists and public policy analysts suggest that the president may aim to reduce or relax regulations across various sectors and cut government expenditures.

“The focus will be on energy, reducing regulations, and minimizing waste in government spending to liberate limited resources,” said Joe LaVorgna, who served as the chief economist of the National Economic Council during Trump’s first term and currently holds the same role at SMBC Nikko Securities.

How Does Deregulation Affect Inflation?

Deregulation can decrease the costs associated with adhering to environmental and other governmental regulations, hastening the construction of homes, factories, and other necessary supplies. These changes may, in turn, lead to lower prices for consumers.

Mark Zandi, chief economist of Moody’s Analytics, contended that while reducing bureaucratic obstacles could potentially lower prices, the implementation may take years and success isn’t guaranteed. He pointed out that unlike extensive deregulation of industries like airlines and utilities from decades past, “the current regulatory changes being contemplated are more incremental,” Zandi commented.

Has Inflation Decreased?

Inflation rates, including those at the gas pump, have already seen a considerable drop since reaching a peak in 2022. As pandemic-induced supply chain issues have begun to resolve and consumer demand has stabilized, annual consumer price hikes decreased from a 40-year high of 9.1% in mid-2022 to 2.9% in December, slightly above the Federal Reserve’s 2% target, as per the consumer price index.

Trump asserts that he’ll take further action to bring prices down. However, in a recent interview with Time Magazine, he admitted: “It’s challenging to reduce prices once they have risen. You know, it’s quite difficult.”

At the same time, analysts predict that Trump’s primary economic policies could unintentionally lead to further price hikes, outweighing any inflation-reducing initiatives.

What Do Tariffs Do?

High tariffs imposed on imports could similarly raise consumer prices, as noted by Moody’s. Extending and widening the 2017 tax cuts could also spur increased consumer and business spending, further driving prices upward. Additionally, deporting millions of immigrants without permanent legal status may lead to labor shortages in industries like agriculture and construction, causing wages and prices to rise.

“Everything Trump is implementing is likely to lead to higher inflation than what we experienced in the final year of the Biden administration,” remarked Jeremy Mayer, a professor at George Mason University’s Schar School of Policy and Government.

Earlier this week, Trump threatened to impose a 25% tariff on imports from Canada and Mexico starting February 1, which Deutsche Bank estimates could elevate inflation from 2.9% in December to 3.7% by the end of 2025. He also indicated he’s considering an additional 10% tariff on China during that timeframe.

Trump has denied that his tariffs and tough immigration policies would lead to higher inflation. LaVorgna pointed out that by discouraging imports, tariffs could strengthen the dollar, which may lower import prices for consumers, partially balancing out the effects of tariffs. Consequently, he mentioned, many companies may simply absorb the costs of these tariffs.

Moreover, in his executive order, Trump highlighted the “unprecedented regulatory oppression by the Biden Administration,” which he claims is costing the average household tens of thousands of dollars.

Here’s a glimpse into how Trump might address inflation, according to economists and public policy experts:

Energy

One aspect of Trump’s energy plan would be to permit oil drilling in the Arctic National Wildlife Refuge, according to The Associated Press. He aims to cut gas prices in half by increasing domestic oil production.

However, energy experts indicate that U.S. crude production is already at a record high, with the country being the top global producer. Even with prices rising recently, the Department of Energy forecasts that production will increase this year while oil prices are expected to average $70 a barrel this year and decrease to $62 by 2026.

This projection is on the lower end for producers hoping to turn a profit, according to YSL News. Additionally, oil prices are influenced by the global market. If production increases in Alaska or U.S. coastal areas lead to lower prices, OPEC or other U.S. producers would likely react by scaling back production to raise prices again, explained Robert Kauffman, a professor at Boston University who specializes in global oil markets.

The Department of Energy anticipates that average unleaded gas prices will be around $3.20 a gallon this year, just 10 cents lower than the average expected in 2024, and $3.00 in 2026.

LaVorgna, however, emphasized that oil prices averaged $53 a barrel during Trump’s first term – while unleaded gas was approximately $2.60 a gallon – indicating room for additional production to further lower gas prices.

Housing

Housing has been the leading contributor to inflation in recent years, responsible for 37% of the consumer price hike observed in December. Government statistics reveal that median home prices have surged by 18.4% and rents have risen by 24% since early 2021.

The main issue is the shortage of housing supply. Much of this can be attributed to local zoning laws, but federal environmental regulations also contribute to construction delays and increased costs, according to Mayer and the National Association of Home Builders.

The Waters of the U.S. Act necessitates that builders obtain federal permits to fill even small water bodies. Acquiring such permits can take an average of 788 days and cost around $270,000, a study cited by the National Association of Home Builders found. Congress could address these issues by reforming the Clean Water Act and the Endangered Species Act to expedite permitting, the housing association suggested.

In addition to deregulation, Congress might expand a tax credit to help fund the construction of affordable rental units, as the association noted that demand far exceeds supply.

Zandi, however, cautioned that while these measures could help in managing prices is needed, as tariffs would increase the cost of imported construction materials. Furthermore, deporting a significant number of immigrants could slow down home construction, given that immigrants represent 30% of the workforce in building trades.