Promises Made, Promises Kept: Donald Trump and the Fight Against Inflation
During his campaign, Donald Trump made a bold promise to American voters: “When I win, I will immediately bring prices down, starting on Day One.” This pledge resonated deeply with many who felt the pinch of rising costs under the previous administration. Trump’s critics, however, were quick to dismiss his tariff plans, arguing without evidence that they would lead to higher inflation. Many economists echoed these concerns, suggesting that while the rate of price increases might slow, Americans would still have to adapt to a new, higher baseline for prices. But as February’s economic data revealed, Trump’s critics may have been premature in their skepticism.
February’s Economic Data: A Surprising Decline in Prices
In February, the core producer price index (PPI) for final demand declined by 0.1 percent, marking a rare occurrence where prices actually fell. This index, which measures the prices of goods and services sold by U.S. businesses excluding food and energy, showed a welcome drop. The broader PPI, which includes all goods and services, remained flat for the month, indicating no inflation whatsoever. These numbers were significantly better than what economists had predicted. Experts had forecast a 0.3 percent increase in the broad PPI and an even larger 0.5 percent rise in core producer prices. Instead of the expected surge in prices, the economy experienced a measure of stability—and even a decline in core producer prices.
Understanding the Producer Price Index (PPI): What It Measures and Why It Matters
The PPI is often misunderstood as a measure of wholesale prices, a confusion that dates back to its original name, the “wholesale price index.” However, this label was changed in 1978, and the index has never strictly measured wholesale prices. Instead, the PPI for final demand tracks the prices that U.S. businesses receive for goods, services, and construction sold for personal consumption, capital investment, government purchases, and exports. Importantly, it excludes export prices paid to foreign producers and sales taxes paid to the government. The PPI provides a critical snapshot of economic activity, offering insights into inflationary pressures before they reach consumers.
The Consumer Price Index (CPI): A Different Perspective on Inflation
While the PPI focuses on prices at the production level, the more widely recognized Consumer Price Index (CPI) measures the prices that U.S. consumers pay for goods and services. The CPI includes sales taxes and excludes export prices, as well as the prices paid by businesses, nonprofits, and government entities. Although the PPI and CPI can diverge in any given month, they tend to move in tandem over time. In February, both the broad CPI and core consumer prices rose by 0.2 percent, indicating that inflation at the consumer level remained moderate. Despite these monthly fluctuations, the year-over-year inflation measures remain elevated, reflecting the lingering effects of high inflation during President Joe Biden’s term.
The Legacy of Inflation: Biden’s Presidency and the Transition
The elevated year-over-year inflation measures are a reminder of the high inflation that persisted during Joe Biden’s presidency. The PPI is up 3.2 percent from a year ago, while the core PPI has risen by 3.4 percent. Notably, the increase in January was revised upward to 0.6 percent from the initially reported 0.4 percent, suggesting a late surge in inflation at the tail end of Biden’s administration. Analysts have speculated that this surge may have been driven by the Biden administration’s efforts to quickly spend appropriated funds in its final months, potentially attempting to preempt Trump from canceling payments and cutting budgets after taking office.
The “Super-Core” PPI and the Outlook for Inflation
For a more nuanced understanding of inflation, many analysts turn to the “super-core” PPI, which excludes food, energy, and trade services—a measure of retail and wholesale profit margins. This narrower gauge of inflation rose 0.2 percent in February and is up 3.3 percent from a year ago. Meanwhile, the PPI for final demand goods increased by 0.3 percent in February, half the rate of increase recorded in January. Over the past year, goods prices have risen by 1.7 percent, while services prices have surged by 3.9 percent. However, in February, services prices unexpectedly fell by 0.2 percent, adding a layer of complexity to the inflation picture.
Conclusion: Promises, Performance, and the Path Ahead
Donald Trump’s promise to bring prices down has been met with skepticism by critics, but the February data suggests that his policies may be having an impact. The decline in core producer prices and the stabilization of the broader PPI are encouraging signs for those hopeful about taming inflation. However, the year-over-year figures serve as a reminder that inflation remains a lingering challenge, one that predates Trump’s presidency but will likely define his economic legacy. As the year unfolds, the interplay between producer and consumer prices, the impact of Trump’s policies, and the broader economic trends will shape the trajectory of inflation—and determine whether Trump’s promise of lower prices is fully realized. For now, the data suggests that the tide may be turning in favor of price stability, but only time will tell if this trend will endure.
