Inflation reignited

Inflation expectations among US consumers have increased sharply since the reelection of President Trump. Inflation expectations came down from 5.4% in 2022 to 2.7% in September 2024 and have since increased to 4.3% in February of this year. Actual inflation has also crept up from 2.4% in September 2024 to 3.0% in January of this year. Higher inflation expectations are likely driven by (potential) tariffs that would make imported goods more expensive. Interestingly, a striking difference in inflation expectations is visible between survey respondents that identified as Democrat, Republican and Independents. Democrats expect inflation of 5.4% in one year while Republicans expect -0.1% and Independents 3.7%. High inflation expectations could fuel actual inflation as consumers anticipate higher prices by bringing forward planned purchases thereby increasing demand in the short-term.

Source: University of Michigan, February 2025.