I recorded the December 19 commentary before President Trump gave his speech on Wednesday, December 16. I discussed the reason why the public sees inflation as a continuing problem and pointed out that in general, the rate of inflation had remained near 3 % since he took office last January. Interestingly, if Trump had waited one day to give his speech, he could have trumpeted the fact that the rate of inflation in November had fallen to 2.7 percent which is both a good thing and a dangerous thing. It’s good that inflation is coming down but it is dangerous because that might be an indication of a slowdown in GDP and employment growth which is having a downward pressure on wage and price increases. (And we should always remember that one month’s data is not very helpful – trends are important.)
For this longer written version, I want to expand on a number of points that I made in my verbal essay as well as take a “mini-dive” into Trump’s virtually incoherent rant in his national address.
Let’s start with a very important fact. The Democrats lost to Donald Trump in 2024 because inflation spiked at close to 9 % in 2022 (the rate for the entire year was 8 %). This was after a period of more than 40 years when the inflation rate averaged less than 3 % --- and only topped 5% once in the late 1980s. This was a period which was described by Ben Bernanke, the former Federal Reserve Chairman, as “the great moderation.” Thus, the big inflation increase, even though it was followed by a decline in the rate of inflation, came after more than 40 years of moderate inflation. This had a tremendous impact on the average citizen, even though on average, wages rose more than prices in 2023 and 2024.
[For details of the real wages (wages above and beyond inflation) of the median worker, see
https://fred.stlouisfed.org/series/LES1252881600Q]
Interestingly, when Trump said in his speech that he “inherited” an economy where inflation was at a 48-year high, he was close to being current inasmuch as the 9 % inflation rate in 2022 was a 48-year high. But by the time he became President, the rate was down to 3 %.(Did Trump forget that Biden was President from 2022 to 2025?)
Despite that lie, in his campaign he captured the mood of the country --- that spike of 9 % was VERY SIGNIFICANT and it did lasting damage to the public’s attitudes toward the economy and the economic policy makers.
In the 1970s, economist Arthur Okun proposed that in judging the macro-economic performance of the economy we should add the rate of unemployment to the rate of inflation to arrive at the “misery index.” And by the end of the 1970s that number was quite high --- peaking at 22 % in 1980.
When I taught Principles of Economics and we came to the discussion of the “twin problems” of unemployment and inflation I would try to provoke my students by arguing that “inflation has gotten a bum rap” from journalists and the public (and lots of economists). I would blame the influence of bankers because they make their living lending money ---and usually at fixed interest rates. When inflation goes up, it reduces the real value of the interest bankers are earning so naturally, they oppose inflation. I would argue, however, that for people who borrow (most small businesses, people with mortgages on their home, people with three-year car loans) inflation helps ease the burden of repayment so long as their wages keep pace with inflation.
Unemployment on the other hand, is a total loss to the economy. Output that could have been produced if the economy had been able to employ people willing and able to work is gone forever. If I am unemployed for a full year, my lifespan stays the same. I cannot add another year to my life to make up for a year I was unemployed. Unemployment also hurts people who are still working. Unemployment means a slowdown in total production – that means people working may not get raises. Businesses still in existence may not expand. States and localities may have budget shortfalls. My town might not be able to hire more police officers or put a new roof on a local school.
However, despite the fact that I believe that inflation is much less of a problem for society than unemployment, no matter what I or any other economist says, when inflation rises unexpectedly as it did in the 1970s and as it did with dramatic impact in 2022, it has a very strong impact on the public.
Think of this. In 2022 when inflation jumped to 9 % in one of the quarters and was 8 % for the entire year, everyone 50- years-old or younger had no adult memories of inflation over 4 %. Thus, this increase came as a shock. And the next unfortunate thing for the Democrats as they attempted to have Biden re-elected and then switched very late in the year to nominating his Vice President, Kamala Harris, was that even though the rate of inflation fell in 2023 and 2024, prices remained high.
This is where some journalists and Trump himself can appear very confused. Unlike the 19th century and the first third of the 20th century, prices almost NEVER fall. The rate of inflation can fall to 2 percent (the target for the Federal Reserve) but prices still keep rising. (Actual falls in prices occurred in 1949, 1958, and during the Great Recession of 2008-2009.) So, when Trump promised to reduce prices should he be elected in 2024, he was displaying ignorance. In his December 17 speech he didn’t say that, but he did take credit for the decline from 9 to 3 % which had occurred on Biden’s watch.
The economist Paul Krugman has been writing a number of Substacks in which he tries to figure out why inflation has such a strong impact on the way citizens feel about the economy even if their wages are outpacing the rate of inflation --- which they were, even in 2022. The reason is almost obvious. Every penny of increased wages or salaries or profits in a small business is earned by the worker or business owner. In the face of earned increased wages or profits the worker or business owner sees inflation as robbing her, him or them of their hard-earned gains. This must have been especially galling to the 30, 40 or 50 somethings in 2022 who had not experienced that significant a bout of inflation for their entire adult lives.
There was good news in 2023 and 2024.The Federal Reserve did not have to engineer a recession to defeat this round of inflation --- and the rate settled down at about 4 % in 2023 and 3% in 2024. However, that gave cold comfort to the people who had been literally traumatized by the spike in inflation during 2022. And the prices they saw in 2023 and 2024 had not fallen from their peaks from 2022. (And we should be grateful they hadn’t fallen because if they had, that would have meant a severe recession such as occurred in 2008-2009.)
Yes, some prices fluctuated wildly. Gasoline had reached more than $5 a gallon in 2022 only to fall back to around $3 a gallon in 2024. It has since fallen to about $2.94 by the end of 2025. (And yes, according to national statistics there are examples in Oklahoma and other states of short run promotionals at some gas stations where the price fell to $1.99. This is NOT typical and for Trump to give it as an example of his success is cold comfort for most motorists.). The price of eggs reached its maximum in 2023 --- fell back in 2024 and reached an even higher maximum in 2025 before falling toward the end of this year.
But these are anecdotal prices that matters --- we need to track the main items on which consumers spend their income: groceries, rent, utilities, etc.
So, let’s check up on groceries. According to the US Department of Agriculture food price inflation was higher than the overall consumer price index inflation. [For details see
https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings]
When we come to utilities, we get similar bad news. The average price per kilowatt hour in the U.S. kept rising despite Trump’s promise to cut them. [For details see https://fred.stlouisfed.org/series/APU000072610].
The current economic situation has created a negative attitude on the part of the public toward Trump’s handling of the economy. This is significant because the public had previously given Trump relatively high marks as an economic steward. In fact, that was why he was elected in 2024.
His policies of drastic increases in deportations, high (and changing) tariffs, cuts to the federal work force have all made the economic data worse. The unemployment rate has crept upwards but more importantly, the uncertainties created by both tariffs and the wholesale adoption of artificial intelligence has led to something like a hiring freeze. Thus, for people changing jobs or looking for their first job the outlook is bleak, even though the unemployment rate overall remains at less than 5 percent.
The inflation rate had stayed stubbornly at 3 % until the most recent report. And as I wrote early in this piece, that might be bad news as it indicates downward pressure on wages from the rise in unemployment. But one thing is very important. Should the inflation rate stay near 3 % or even fall toward the Fed’s goal of 2 %, will the shock of the 2022 spike in inflation wear off and people settle down with those rates and in effect forget the shock from 2022. Sometime after 1980, the shock from the 1970s inflation spikes wore off and people got very used to “the great moderation.” It will be very significant to see when the 2022 shock “wears off” in the public’s perceptions.
Now let’s take a dive into Trump’s speech. [A full transcript is available from the NY Times. And for a detailed set of comments, I recommend the interview given by economist Dean Baker on the show Democracy Now available here.]
He started off by claiming the economy was in a shambles when he took over 11 months ago. That is totally untrue. Unemployment was low, inflation was down to 3 %, the rate of growth of real GDP was high. The Economist magazine from Britain said the US economy was the envy of the world. [For details see https://www.economist.com/leaders/2024/10/17/americas-economy-is-bigger-and-better-than-ever]
The speech goes on from there --- anyone who wants to subject themselves to it can read it. Almost every fact he cites is a lie or distortion. One of my favorites, though is the idea that real wages fell under Biden and have risen under him. Yes, there was a fall in 2022 but real wages started to rise in 2023 and were still rising when Trump was elected.
And finally, we get to his plan to cut prescription drug prices. As economist Baker points out, this will be a Trump created discount opportunity which will not affect everyone whose prescription drugs are paid for by employer-provided health insurance or government programs like Medicare part D. And there are already discount opportunities at pharmacies that get advertised on TV so this Trump-provided discount will affect very few people. And then we get to the mathematical horror show. Trump’s advisers actually let him say on national television that he was going to cut drug prices 300, 400 maybe 600%. Why did they let him display such incredible ignorance of basic mathematics. If you cut a price by 100 % it has been cut all the way to ZERO. The only way to cut a price more than 100 % is if the business selling you the product gives you the product and pays you.
So, imagine a price of $100 for a drug. If you get a cut of 50 percent, the price if now $50. I you get a cut of 100 %, the price is now ZERO. So, what does a cut of 300 % mean? The pharmacy gives you the drug and pays you $200? Ridiculous. As I just wrote, I cannot believe his advisers let him say that in a nationally televised speech.
The speech was laughable and in some ways scary because clearly, he is not in control of his faculties and remember --- he can start a nuclear war anytime he wants.
Finally, to get back to the economics ---- the next six months will determine whether the economy will right itself in which case Trump will be able to say, “See, I told you I was going to improve things” even though it was his set of policies that sent the economy off the path it was on when he was elected. It will also be an indicator as to whether or not the shock of the inflation spike in 2022 will start wearing off. If the economy continues to behave sluggishly --- if hiring is even more elusive to those looking for their first jobs or changing jobs, then there will be an anti-Trump, anti-Republican backlash come November. And that will occur even if the inflation rate settles down between 2 and 3 %. These next six months will be crucial.
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies.
The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.
