Trumpflation

What Is Trumpflation?

The term “Trumpflation” refers to the concern that inflation might increase during Donald Trump's presidency. The term was used in media coverage surrounding Trump’s election, by economists and other commentators.

Understanding Trumpflation

In the months before and after Trump’s election victory in Nov. 2016, market commentators speculated that his proposed policies could lead to higher levels of inflation.

One of the main policies cited by those voicing this concern was Trump’s proposal to spend $1.5 trillion on infrastructure projects over a 10-year period. However, given the legislative gridlock in Washington, and a total lack of proposals from the administration, Trump never enacted these policies.

The speculation over potential inflation was also driven by Trump’s campaign promise that he would reduce or even eliminate the U.S. national debt, which was just below $20 trillion prior to Trump’s election. This led to speculation that the Trump Administration might seek to “inflate away” the national debt or impose aggressive cost-cutting measures to reduce the deficit. However, in the years following Trump’s election, deficits have increased considerably, with the national debt growing accordingly.

Other policies that led to the concern over potential Trumpflation included the potential growth of after-tax incomes due to planned tax cuts, the potential growth of domestic wages due to restrictions on immigration, and the potential rise in consumer prices due to new tariffs and other protectionist measures.

At the same time, marker commentators also identified several factors that might serve to mitigate these inflationary risks. Technological innovation, an aging population, and swelling global debt continue to push down prices; while the growing national debt could undermine plans for further economic stimulus.

In Nov. 2016, The Wall Street Journal reported that from 1952 to 1999 every additional $1.70 of debt-based government spending was associated with $1.00 of Gross Domestic Product (GDP) growth. By 2015, however, the amount of debt needed to produce that same $1.00 of growth had risen to $4.90.

While the years of the Trump presidency may have been difficult for the economy in several ways, the rate of inflation was similar to the rates during other recent presidential administrations.

Real-World Example of Trumpflation

The speculation around Trumpflation that occurred around the time of Trump’s election was also reflected in the financial markets themselves. In the early morning following Trump’s election victory, markets began generating signals that higher inflation might be on the horizon. 

A Bank of America Merrill Lynch (BAML) released that day stated that rolling eight-week inflows to Treasury Inflation-Protected Securities (TIPS) had reached a record high. Similarly, ten-year Treasury yields rose 30 basis points between Nov. 8 and Nov. 10. The result was a steeper yield curve, spurring concerns over future inflation.