Key Takeaways
\nWhile the majority of economists expect inflation to remain stable or fall this year, one forecaster believes it could rise to 4%.Tariffs and other economic policies of the Trump administration have only put moderate upward pressure on inflation so far, but economist Adam Posen says the effects could simply be taking longer than expected to play out.<\/p>\n
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Inflation is probably going to cool down this year. Or is it?<\/p>\n
A prominent economist\u2014Adam Posen, president of the Peterson Institute for International Economics\u2014has broken with the consensus among experts that price increases are likely to simmer down over the course of 2026, forecasting that inflation will surge to a 4% annual rate by the end of the year.\n<\/p>\n
Most other economists predict it will fall to some degree from its current level of a 2.4% annual increase in January<\/a>, the most recent data available.\n<\/p>\n What This Means For The Economy<\/p>\n Surprisingly high inflation would do serious damage to the economy and household budgets, as they are still adapting to the post-pandemic surge in prices.<\/p>\n Forecasting the economy is notoriously difficult, and Posen is an outlier. But his prediction is grounded in very real trends. If he is correct, we might see an unwelcome return of the public’s least favorite economic phenomenon.<\/p>\n Tariffs, tax cuts, the immigration crackdown, the Federal Reserve, and human psychology could all play a role in pushing up prices faster than most experts anticipate, Posen argues.\n<\/p>\n Companies have, for the most part, raised their prices slowly in response to the new import taxes, Posen notes. That could mean the price increases will continue for longer, stoking inflation in the year ahead. Posen estimates tariffs will add 0.5 percentage points to the inflation rate by midyear.<\/p>\n “Historical evidence shows that tariff pass\u2011through tends to be gradual, with consumer prices rising only as firms revise pricing with a lag,” he wrote in a blog post last month. “That pattern is playing out again: companies have now depleted the inventories they stockpiled ahead of tariff implementation. And although CEOs have been reluctant to impose a sharp, one\u2011time increase, they are raising prices in smaller increments over a longer period.”\n<\/p>\n The picture could get even more complicated after the Supreme Court struck down Trump’s tariffs<\/a> on Friday. Trump imposed 15% “worldwide” tariffs<\/a> over the weekend.<\/p>\n