On inflation risks, Democrats and Republicans seem to occupy separate realities
When it comes to inflation, Democrats and Republicans seem to occupy separate realities.
Democrats expect prices to rise by 6.5% over the next year, according to a closely watched University of Michigan consumer survey in March.
Republicans expect prices to increase by 0.1%.
That spread illustrates how partisan politics shape not just approval ratings and consumer confidence but opinions about specific data points in the second term of President Donald Trump.
With the exception of Republicans, most rank-and-file Americans now predict resurgent inflation in the coming months. Overall, American consumers expect 4.9% inflation over the next year, according to the University of Michigan Surveys of Consumers. That figure hasn’t ranged so high since November 2022.
Just three months ago, in December 2024, Americans expected prices to rise by only 2.8% over the next year.
In another consumer confidence survey, from The Conference Board, Americans said they expect prices to rise by 5.1% in the next year. That March figure is the highest reading since 2023.
On the other side of the sales counter, a survey of small business owners in February found a 10-point increase in the share who said they were raising prices. That’s the largest monthly jump since 2021, according to the National Federation of Independent Business.
“What we’re seeing across all of these surveys is this belief that we’re back in inflationary times,” said Michael Negron, a fellow at the progressive Groundwork Collaborative.
Inflation fears are rising. Blame tariffs.
Inflation fears are rising largely because of tariffs. Trump has launched a trade war with Canada, Mexico and China, among other targets. The president’s stated goals include moving jobs back to the United States and reducing America’s dependence on other countries.
Trump campaigned on a pledge to “end inflation,” and he repeatedly assured supporters that other nations would pay the price for tariffs.
“It’s not going to be a cost to you,” he told supporters at a Wisconsin rally in September. “It’s going to be a cost to another country.”
Many Republicans evidently still believe Trump will reduce the annual inflation rate to zero. In the first three months of 2025, on the Michigan survey, Republicans have reported that they expect prices to rise by no more than 0.1% over the next year. That is a median number, meaning that half of respondents gave a lower figure. It’s reported as a three-month moving average.
A year ago, Republicans feared inflation. Democrats did not.
A year ago, when Joe Biden was president and Trump a candidate, the roles were reversed. In February 2024, Republicans expected prices to rise 3.7% in the year to come, while Democrats expected an increase of 2.1%.
The actual inflation rate for February 2025 was 2.8%, neatly splitting the difference between the partisan forecasts.
“With Trump’s election, you suddenly had Democrats like, ‘Oh, wow, the future looks really bleak,’ and Republicans are much more confident about the future,” said Joanne Hsu, director of the Surveys of Consumers at the University of Michigan.
Hsu concedes, however, that the current spread between Democrats and Republicans on inflation, 6.5% vs. 0.1%, is stark.
“There’s a huge amount of partisan influence when you see consumer sentiment,” said Stephen Juneau, senior U.S. economist at Bank of America Securities. “We don’t think inflation’s going to all of a sudden fall to zero. We don’t expect 6% inflation, either.”
The unsung hero in this narrative might be the independents, who have served as a voice of moderation in recent Michigan surveys. In March, independents predicted prices would rise by 4.4% over the next year. The figure has been rising.
“That might be a good middle ground to track,” said Matthew Martin, a senior U.S. economist at Oxford Economics. “We’re starting to see inflation expectations for that group trend higher.”
Oxford Economics expects prices to rise by about 3.5% this year, Martin said. That forecast is for “core” inflation, which excludes food and energy prices because of their volatility.
A consumer survey by the Federal Reserve in February forecast that prices will rise by a more modest 3.1% over the next year. The Fed itself predicts its preferred inflation measure will reach 2.7% by year’s end.
On tariff math, Democrats and Republicans have opposing views
Economists are nearly unanimous in the view that tariffs raise prices for consumers in the country that enacts them.
Though Republicans may have been slow to embrace that view, economists say, some Democrats seem to harbor exaggerated fears of tariff inflation.
If Trump were to impose 10% tariffs on every product imported into the United States, prices would rise, but not necessarily by 10%. Tariffs affect prices on goods, not services. The United States is a service economy.
“Two-thirds of our spending is on services,” Juneau said. “Tariffs are really only going to affect goods, so they only affect that one-third.”
Let’s say you take your car in for new tires. Tariffs might raise the price of the tires, but they’d have no direct impact on the labor costs you pay to have them installed.
Economists draw a distinction, too, between the tariffs Trump has threatened and those he has enacted. Many of Trump’s proposed import taxes have been scuttled, scaled back or postponed, often after rounds of tense negotiation. Keeping up with them all requires a tariff tracker.
Presumably, not all of the import taxes will come to pass.
“Canada and Mexico, we still expect them to avoid tariffs,” at least on a large scale, Juneau said. They are America’s leading trade partners. “We really expect no increases there.”