I n the war on affordability, President Donald Trump declared victory against inflation. During a speech Wednesday in Davos, Switzerland, Trump claimed to have defeated inflation and kept consumer prices under control over the previous year.
In a talk to world leaders and others at the World Economic Forum, Trump stated that the United States has "virtually no inflation." "Grocery prices, energy prices, airfares, mortgage rates, rent, and car payments are all coming down, and they're coming down fast," Trump said in a broad speech, adding, "We've done a hell of a job in 12 months." However, federal data suggests that some of these assertions are exaggerated.
Despite political claims, U.S. inflation remains above the Federal Reserve’s target and continues to pressure household budgets.
Inflation is a measure of how quickly prices rise for customers. The Federal Reserve, the United States' central bank, aspires for an annual inflation rate of roughly 2% in the long run. The consumer price index, or CPI, a key indicator of US inflation, was 2.7% annualized in December, a rate that experts say remains high. "To say the US has 'virtually no inflation' is factually incorrect and a classic Trump overstatement," said Thomas Ryan, a North America economist at Capital Economics, in an e-mail. The core CPI, which excludes volatile energy and food costs, "remains uncomfortably high for policymakers at 2.6%," according to Ryan.
Mark Zandi, Moody's chief economist, also told CNBC that inflation is still "uncomfortably high." "Inflation is especially problematic for lower and middle-income Americans, given the high inflation for many staples such as groceries, electricity, apparel, furniture, childcare, and healthcare," Zandi noted via e-mail.
Why This News Matters:
Some people have praised President Trump's claim that he has "defeated" inflation, while others have doubted it. Some people may agree with him that prices for consumers are going down, but federal data tells a different story. Some prices have gone down, but inflation is still higher than the Federal Reserve's goal. This is hard on Americans with low incomes. His tariffs and other protectionist policies are also driving up prices. Since Trump's words don't match up with the facts about the economy, the conversation will probably change how voters and investors see his economic record before the next election.
The Impact of Trump's Tariff Policy on Inflation
Ironically, Trump's tariff approach is pushing inflation higher and preventing US authorities from declaring triumph, experts say. Tariffs are taxes imposed on imports into the United States that are paid by the person or company importing the products. The average effective tariff rate in the United States is 17.5%, the highest since 1932, according to the Yale University Budget Lab. The research includes a 10% tariff that Trump has threatened to slap on eight European allies on February 1 if the United States does not get control of Greenland. Without the Greenland-related duties, the effective rate is 16.9%.
Economists said the effective tariff rate was around 2% at the beginning of 2025. Economists say firms have not passed on as much of their tariff expenses to consumers as expected. However, based on current tariff rates, the average consumer will pay an additional $1,300 to $1,700 in 2026 compared to what they would have paid before Trump took office in 2025, according to John Riccio, associate director of policy research at the Yale Budget Lab. While inflation remains above the Fed's 2% objective, it is "pretty close," said Joseph Gagnon, senior fellow at the Peterson Institute for International Economics, in an email. "Most economists think it would have been on target except for the tariffs," he said.
Economic Effects of Trump's Economic Policies
One year into his second term, President Donald Trump stated that the United States is the "hottest country anywhere in the world." On Wednesday, Trump extolled America's economic might to an assembly of global elites at the World Economic Forum, claiming that the country is seeing "virtually no inflation and extraordinarily high economic growth." On Tuesday, Trump delivered a lengthy briefing to media in Washington, clutching a stack of documents marked "365 WINS IN 365 DAYS: President Trump's Return Marks New Era of Success, Prosperity."
- Inflation remains elevated
- Job growth slowed sharply
- Manufacturing jobs declined
- GDP growth strong
While the American economy has proven to be resilient, the data presents a mixed picture. Inflation remains higher than the Federal Reserve's goal rate, job growth has slowed significantly in 2025, and while oil prices have reduced, Trump has overestimated how much. Department of Government Some of the variables that affected the employment picture during Trump's first year of his second term included efficiency cuts to the federal workforce, his mass deportation effort, and his sweeping global tariff agenda.
Last year, job growth dropped sharply, adding only 584,000 jobs. That was significantly fewer than in each of the preceding four years under his predecessor, Joe Biden, when more than 2 million jobs were added annually. Barring three recession years, 2025 was the slowest 12-month period for job creation in the United States since 2003. Trump predicted in the spring that his protectionist economic policies would bring "jobs and factories roaring back into our country." But this hasn't happened yet.
On the contrary, manufacturing employment has decreased by 72,000 jobs since Trump announced his "reciprocal" country-specific tariffs on April 2, a day he named "Liberation Day." While employment fell short of Trump's early promises last year, U.S. productivity increased more than many economists expected. The government Bureau of Economic Analysis estimated in December that real gross domestic product, or GDP, expanded at an annual rate of 4.3% in the third quarter of 2025. In the previous quarter, the annual rate of GDP growth was 3.8%. The 4.3% GDP growth rate was the highest quarterly gain since the third quarter of 2023.
Breakdown of Consumer Prices and Trends
The totals "reflected increases in consumer spending, exports, and government spending that were partly offset by a decrease in investment," according to the British Economic Association. "Imports, which are a subtraction in the calculation of GDP, decreased." Many Wall Street experts believe fourth-quarter economic growth will be much stronger. The Atlanta Federal Reserve Bank predicts that GDP will grow by 5.4% in the quarter. Over the last year, wealthier people have driven consumer spending, while many lower- and middle-income households have reduced spending to cover rising living costs.
Overall, prices rose 2.7% in December compared to December 2024. That is higher than the Federal Reserve's 2% aim but a significant improvement from the high-water point of 9% inflation following the pandemic. Some categories stood out among the 2.7% inflation statistic. According to Bureau of Labor Statistics inflation figures, urban power rates have increased by an average of 6.7% since January of last year. During the same time period, vehicle insurance rates jumped 0.8%, while average monthly housing prices rose 2.8%. Grocery costs increased 1.9%. While average supermarket price increases were mild, the cost of key consumer essentials skyrocketed last year.
According to NBC News' grocery price tracker statistics as of last week, the average price of orange juice has increased by 37.6% over the previous year. Ground beef prices increased by 16.4% over the same time period. Weather, diseases affecting oranges and cows, and higher labor costs all played a role in both cases. However, the average egg price fell by more than 20% last year, according to the NBC News tracker. Gas prices have also fallen dramatically since Trump took office, by an average of 11.5% since last January. GasBuddy predicts that the average price of gas this year will be $2.97 per gallon, 13 cents cheaper than last year's average.
Stock Market and Economic Growth under Trump
Trump has also taken credit for the stock market's recent record highs. Indeed, key indices have established new records during Trump's second term, with the S&P 500 and Dow both closing at all-time highs as recently as January 12. The S&P 500 rose 13% in the first year of Trump's second term. However, when compared to market gains during other recent presidents' first years in office, this figure pales. During Biden's first year in office, the S&P increased almost 16%. It increased by approximately 24% during Trump's first year in office. However, these gains pale in comparison to the S&P's 41% gains in the first 12 months of Barack Obama's administration, when the United States rebounded from the 2008 financial crisis.
Tuesday, the first anniversary of Trump's second term, was marred by a Wall Street crash, with the S&P shedding more than 2% of its value. The losses extended to global markets as well as other US indexes, with the Dow Jones Industrial Average and the tech-heavy Nasdaq also closing substantially lower. The sell-off was fueled by an exodus from US equities and bonds known as the "Sell America" trade, in which investors sold shares while considering the possibility of a trade war between the United States and Europe.
Over the weekend, Trump threatened to impose fresh 10% tariffs on seven European Union countries and the United Kingdom unless they supported his bid to give the US control of Greenland, a semi-autonomous Danish region. The European Union halted final approval of its July trade accord with the United States on Wednesday. Trump told world leaders in Davos, Switzerland, that the United States is the world's economic engine, dismissing the repercussions from his recent tariff threats. "And when America booms, the entire world booms."
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