The exact thing that helped Trump win could become a big problem for his presidency

Analysis by Matt Egan, CNN

New York (CNN) — Donald Trump rode a powerful wave of discontent over the cost of living back to the White House.

Voters, fed up with high prices on everything from groceries to car insurance, have ousted Democrats from power in Washington.

Trump reminded voters often that inflation wasn’t a problem when he was calling the shots. And he has promised to attack high prices by shaking things up.

But if he’s not careful, Trump could have an inflation problem of his own.

Some of the very same campaign promises that appealed to voters – mass deportations and sky-high tariffs – would be inflationary if enacted, perhaps very inflationary.

Not only that, but the bond market is already getting nervous about Trump’s plans to add trillions to the national debt. Bond yields have climbed sharply, a situation that will make it more expensive to get a mortgage or home equity loan and finance the purchase of a car.

“The lesson of this election shouldn’t go unnoticed by Republicans – inflation doesn’t sit well with voters, and they won’t forget,” Ryan Sweet, chief US economist at Oxford Economics, told CNN.

Of course, it’s far too early to know which of Trump’s campaign promises will become a reality. For now, Wall Street seems largely unfazed by the inflation warnings.

Investors appear to be betting that Trump won’t actually go forward with plans to impose tariffs on all $3 trillion of US imports, or that he won’t be able to deport millions of undocumented workers. And they may be right.

After all, there’s a long history of presidential candidates softening their approach once the votes are done being counted and the business of governing begins.

America’s affordability crisis

Voters made clear Tuesday their frustrations with the state of the economy.

Two-thirds (67%) of voters described the US economy as not good or poor, according to CNN exit polls.

Despite historically low unemployment, just 32% rated the economy as excellent or good.

And this proved to be pivotal in the outcome.

Among those who described the economy as not good or poor, 69% voted for Trump. Likewise, 40% of Latino voters indicated the economy was the No. 1 issue. Trump decisively carried Latino voters who picked the economy as the No. 1 issue.

The findings illustrate just how angry voters are about the cost of living.

Yes, the rate of inflation is down sharply. It peaked at a four-decade high of 9.1% in June 2022 when gas prices spiked above $5 a gallon.

But no, prices are not down.

“Though economists focus on the rate of price changes, consumers focus on the level of prices,” Sweet said. “The American consumer generally has a short memory, except for when it comes to prices. Many can tell you the price of gasoline, milk and bread down to the penny today versus four years ago.”

Prices vs. paychecks

And all too often, Americans are spending much more than they were when President Joe Biden took office.

Each month, the typical US household must spend $1,120 more than in January 2021 just to buy the same goods and services, according to Moody’s Analytics.

Paychecks are up by about the same amount ($1,192 more per month, on average) but that means many people must spend all their pay hikes just to get by. They’re treading water, not getting ahead.

And keep in mind, these are averages. For many others, wages have not kept up with inflation.

As CNN’s Phil Mattingly noted, Trump flipped multiple counties in Pennsylvania where wages have failed to keep up with prices.

On the campaign trail, Trump promised to not just get the rate of inflation down but to make prices plunge by deporting millions of undocumented people and unleashing fossil fuel production. In August, Trump said he would to get prices to “come down fast.”

However, broad-based price declines are not only improbable, they could bring about a doom loop that’s hard to escape because it feeds on itself.

“The price level for many consumer goods and services aren’t going to plunge,” Sweet said. “The level of prices for many things is permanently higher.”

Tariffs and deportations could lift prices

Not only that, but elements of the Trump agenda could spike prices – if they were enacted. Trump has held up tariffs as a magical fix to almost any problem, describing these taxes on imports as “the greatest thing ever invented.” He’s threatened to impose unthinkably high tariffs on friend and foe alike.

Trump’s promises to impose massive tariffs, deport millions of undocumented workers and potentially influence the Federal Reserve would weaken growth, boost inflation and lower employment, according to a recent working paper released by the Peterson Institute for International Economics. Inflation would climb to at least 6% by 2026, and by 2028, consumer prices would be 20% higher, the researchers found.

Trump has insisted that his trade agenda will not be inflationary, noting that price increases were modest during his administration even as he lobbed massive tariffs on China.

Still, Trump’s calls for across-the-board tariffs have alarmed mainstream economists. They point to study after study that shows Americans bore almost the entire cost of Trump’s tariffs on China.

Trump’s tariff proposals would cost the typical US household over $2,600 a year, according to a separate analysis from the Peterson Institute.

Slapping tariffs on apparel, toys, furniture, household appliances, footwear and travel goods alone would cost Americans at least $46 billion a year, according to the National Retail Federation, a trade group that represents retailers.

“We’re going to create the worst of both worlds: We’re going to have higher domestic prices for goods and some services…and we’re going to have no overall improvement to the jobs picture or the wage picture,” Daniel Alpert, managing partner at Westwood Capital, told CNN’s Allison Morrow.

Even Stephen Moore, a conservative economist who has been very supportive of the overall Trump agenda, recently told CNN he’s “not a big fan” of tariffs like what Trump has proposed.

“When Trump uses tariffs as a negotiating tool, I’m fine with that,” Moore said during a phone interview in late October. “But I don’t want to see us dramatically raise tariffs on imported goods. Tariffs are taxes. And my worry is, if you take it too far, you’re going to get into a tit-for-tat situation.”

And that raises one of the paramount economic questions of this next Trump era: Will he soften his economic proposals to avoid reigniting prices? Or will he triple-down on tariffs in a way that invites a return of inflation?

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