How Trump's Policies Will Drive Up Inflation

Donald Trump's protectionist policies will drive up inflation in the US, which in turn will put pressure on the Fed to raise interest rates

Emma Wall 31 January, 2017 | 1:52PM
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Inflation has picked up sharply in the UK, US and Europe – and thanks to President Trump’s policies it is here to stay, warn economists.

Recent inflation has been caused by stronger economic growth and rising commodity prices, which in turn has supported equity markets. Headline inflation rates in the US, UK and Eurozone directly mirrored the fall and then rise of the oil price from $100 a barrel, to $25 last February, up to $55 today. In the UK, the Consumer Price Index measure of inflation hit 1.6% last month – up 0.2% a year earlier. In Germany, inflation has hit 1.9%, where there was deflation of -0.4% just two years earlier.

Stripping out food and energy prices, core inflation is a lot more sanguine, and has remained relatively stable for the G7 countries for the past 20 years. This could mean under normal circumstances once energy prices stabilise so too could headline inflation. But that outcome now looks unlikely thanks to Trump – enabled by strong economic growth.

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About Author

Emma Wall  is former Senior International Editor for Morningstar