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Aug 15, 2025  |  
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The Editors


NextImg:Beware the Return of Inflation

President Trump seems to think the Bureau of Labor Statistics’ jobs reports are made up, but what about the inflation reports? The BLS’s consumer price index last month registered a 2.7 percent year-over-year increase overall, with a 3.1 percent rise in core prices (excluding food and energy). The producer price index for final demand surprised on the upside, rising 3.3 percent year-over-year.

The surge in the producer price index is not due to tariffs. The BLS says three-quarters of the increase was due to higher prices for services, not goods. And that should worry the administration more than if it were caused by tariffs.

“The index for final demand services moved up 1.1 percent in July, the largest advance since rising 1.3 percent in March 2022,” the producer price index report says. March 2022 was in the lead-up to 9 percent inflation in the summer of that same year, the tip of the spike in prices that made the Democrats who were in power at the time so unpopular.

There was, of course, a confluence of other circumstances in 2022 that do not obtain today, and 9 percent inflation is unlikely to reemerge. But 3 or 4 or 5 percent? Perhaps. Inflation has been stuck around 3 percent since June 2023, despite Federal Reserve rate hikes to get it back down to the 2 percent target. And the administration isn’t doing much to help.

Trump has relentlessly badgered the Fed for rate cuts and is likely conditioning his nomination for the Fed chairmanship on support for them. With inflationary pressures rising, Trump’s desire for more easy money would, if acted upon, push the price level even higher.

Although they had a golden opportunity to pass spending cuts through the reconciliation process this year, Republicans have kept running the deficits that Washington has become accustomed to. All the extra government spending sloshing around isn’t going to push prices lower.

Trump’s tariffs won’t help either. Though likely not inflationary in general, they will raise prices for the specific goods to which they apply. That includes inputs to production, which means price increases will ripple throughout supply networks.

The administration’s deregulatory efforts will help bring prices down. And the new tax law has good business provisions, especially permanent full expensing for many investments, that will help make production easier. But those good policies will pay off in the medium to long term, while tariffs apply right now.

If tariffs were causing inflation, it would still be difficult for Trump to admit error, but at least it would be clearer what the problem is, and the solution would be to get rid of them. Inflation caused by a variety of factors, with tariffs layered on top, is a much worse economic situation.

Voters are unlikely to be interested in a technical conversation about the difference between relative price increases and inflation. They’ll likely see tariffs that raise prices (that is their purpose, to discourage imports by raising prices) and blame Republicans for any inflation that occurs. Recent polls already show Trump underwater on the issue, a bad sign for someone who won the election last year in part because of inflation.

No matter what Trump’s views are on the merits of the BLS methodology, Republicans need to beware the return of inflation. If Trump stopped the trade war and the Fed war and focused on deregulation and spending restraint while letting the fruit from the tax law ripen, he’d be putting his party, and the economy, in a much better position.