Americans keep saying it: They want lower prices.
Groceries have swelled 25 percent in the past five years. The average price of a new car just topped $50,000. Energy bills are soaring, as are health care premiums and child care costs. And housing has come up as much as 30 percent since 2020, for both renters and buyers.
Inflation was a defining issue of the 2024 election and helped propel Donald Trump’s return to the White House after he promised to bring down consumer prices the day he took office. But a year later, it’s a drag on his approval ratings: 59 percent of Americans give Trump either a great deal or a good amount of blame for the current rate of inflation, according to a Washington Post-ABC News-Ipsos poll. In an attempt to reduce grocery prices, Trump just rolled back some of his own tariffs on certain foods, including bananas and coffee.
The problem is, there’s generally no going back once prices rise. And for good reason.
Retailers don’t reduce prices unless there’s a significant drop in demand, such as during periods of high unemployment. “As terrible as inflation is, that is really undesirable,” said Matt Colyar, an economist at Moody’s Analytics.
Why economists don’t want lower prices
There are exceptions, of course. Egg prices, for instance, skyrocketed last year because of the avian flu but retreated once the crisis passed. Gas prices go up and down, in part because the Organization of the Petroleum Exporting Countries and its partners (OPEC+) tightly control the supply, unlike normal markets.
But the broad inflation that drove up prices across the economy won’t reverse, even though the rate of increase has eased greatly since peaking at 9.1 percent in mid-2022. The most recent consumer price index showed annual inflation at 3 percent. Still, prices overallare 25 percent higher than they were at the start of the pandemic.
Ironically, falling prices can both signal a recession and trigger one.
“Think about what would happen if the price of all goods would drop to the pre-pandemic level,” said Francesco Bianchi, who chairs the economics department at Johns Hopkins University. The inflation of recent years also has driven up workers’ wages. If wages stay high but the price of goods fall, companies won’t make enough profit to pay their employees. “That would make the cost of hiring workers extremely high, and that might trigger a recession — and then the recession creates even more expectation for lower prices. This is why economists are very concerned about deflation.”
Laura Veldkamp, a professor at Columbia Business School, said even the expectation of lower prices can trigger a recession. “If I thought that was going to cost less tomorrow, why would I buy it today? … As soon as we believe the prices are going down, demand will plummet and we’re likely to immediately have a recession,” she said. “Price declines are typically associated with really severe negative outcomes.”
And while Americans might be clamoring for lower prices, surveys suggest they don’t actually expect it to happen. According to the University of Michigan’s Survey of Consumers, most respondents expect inflation to go higher in the next year.
Veldkamp likened the economy to a car speeding on the highway. “The solution is not to stop and throw the car in reverse,” she said. “Under no circumstances should somebody try to make that happen.”
What might actually work
Data released late last month shows annual inflation inching up to 3 percent in September, higher than the 2 percent rate preferred by the Federal Reserve, the main inflation-fighting body. Getting it back there, rather than to zero percent or even negative, is generally the policy goal.
Tariffs, the cornerstone of Trump’s economic policy, have been applied broadly across a range of products, involving dozens of U.S. trading partners. Despite his repeated claims that the import duties would not affect retail prices, the cost of many everyday products has climbed, particularly on food products not grown in the United States. On Nov. 15, Trump issued an executive order rolling back tariffs on many foods, including beef, cocoa, bananas and coffee.
“I don’t think anybody, realistically, in the Trump administration or in the Federal Reserve thinks we can bring inflation toward zero any time soon. From 3 percent to 2 percent, that would be great, and undoing some of those tariffs might work,” Bianchi said.
Many companies opted not to pass on the full amount of his tariffs to blunt customer frustration. But they’re unlikely to fully erase any tariff-related increase even if Trump rescinds the import duties — in part because they may be uncertain about when the tariffs will return, given Trump’s frequent swings in policy.
“You’re not going to see your grocery store lowering their own prices,” Bianchi said. Most companies would rather try for consumer goodwill by keeping prices flat as long as they can, than drop prices and then risk anger when they raise them again.
The tariff rollback, Colyar said, “is an acknowledgment that tariffs aren’t helping.” But neither is it a “silver bullet.”
Colyar does think government policy could reduce prices in two major areas: housing and health care. The government is heavily involved in health care and could pursue policies that reduce costs. And government policy on zoning, land use and related issues could spur the construction of more housing, so that greater supply would help cut into soaring costs.
Some left-leaning activists who have been blaming Trump for high prices acknowledge he can’t return prices to pre-pandemic levels. Instead, while acknowledging the risks that government spending can itself juice inflation, some envision a government that covers more of the costs with which families are struggling. Zohran Mamdani won the New York mayoral race on a platform that calls for subsidizing child care, freezing rent and making public transit free.
“You won’t see us calling for deflation. If we’re in a position where we start to see deflation, it’s because things are going seriously, seriously, seriously wrong [and] people are really, really broke,” said Lindsay Owens, who runs the liberal group Groundwork Collaborative.
Instead, she thinks that government should pursue policies that raise people’s wages and that it should subsidize health care — the issue at the center of the recent record-breaking government shutdown, which ended without a deal to extend the subsidies — and child care. “Some of how things become more affordable is you get some more income, and all of a sudden you can cover the rent and have a little left over … Policymakers need to be much more aggressive about bending the cost curve and trying to stop the bleeding when they can.”
Owens also noted that the economy has been fragmenting. Most people are struggling with the cost of living, while high earners are still spending at levels that keep business humming. That also means costs won’t come down. “Companies aren’t going to drop prices until people can’t pay it. And there are people who can pay it right now.”
Looking on the bright side
The inflation spike of 2022 was unusual in recent history. “People definitely, rightly so, got comfortable with very moderate levels of inflation. We had inflation below what the Federal Reserve thought was a healthy level of inflation for many years,” Bianchi said.
Owens expects prices to be a top concern for years. “People anchor to certain prices … and they have a really hard time adjusting, even as incomes rise and they’re able to absorb it,” she said. “Sticker shock is real. The pace at which prices have increased over the last few years has produced a lot of anxiety for families.”
But, in the way of economists, some of the experts like to point out that it might have been worse, both before and after the 2022 spike.
Before, the country was reeling from the coronavirus pandemic. The government spent heavily on stimulus to prevent the economy from tanking. Most experts now agree that the infusion of cash was then a primary cause of the subsequent inflation.
“We got a lot of inflation. That’s of course a problem for many households. But it’s also true that we dodged a bullet. There was serious concern this was going to be a repeat of the global financial crisis,” Bianchi said.
And then once the inflation started roaring, Veldkamp, the Columbia professor, feared it would take a recession to squeeze out this inflation.
“I was really pleasantly surprised to see the Federal Reserve managed to slow down the economy enough to stop the rate of inflation and not cause a recession. It’s a very rare occurrence,” she said. “This was the most successful inflation stabilization in U.S. history.
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