Why is inflation so stubborn? Will Trump’s tariff war make it worse?

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According to Bloomberg, when it seemed that the great inflation period had ended, the world is reminding the world as to how critical prices can be.

In 2021, lockdown and supply chain increased its prices from the epidemic of Covade 19, and the global energy crisis pushed them further. This has forced central banks to tighten the monetary policy of highly aggressive and harmonious monetary policy in 40 years.

Although his efforts have succeeded in reducing inflation from multi -cad heights, its pace has now stopped, and US President Donald Trump’s tariff war has threatened to send prices up again.

What is inflation?

At a very basic level, inflation increases the overall prices in the economy during a period, which is usually measured on a monthly or annual basis. It also has a decrease in buying power, which means $ 1, for example, is able to buy less goods and services than it.

A common way to correct the amount of inflation is a consumer price index, which detects a change in the cost of costs by a normal home, including food, housing and basic services.

Independent Central Bank considers inflation to maintain one of its most important missions. They set interest rates and use other policy tools, such as adjusting the supply of money, to ensure that inflation is at a ‘healthy’ level. In many economies, including the United States and the European Union, the ideal inflation rate is considered 2.0 % – the target was first introduced by New Zealand in 1990.

How can prices have an impact on inflation?

There are taxes by domestic companies that they import, which they import, so Trump’s Levies will increase US business costs. Although firms can swallow these extra costs and keep their prices stable, they are more likely to eliminate their prices to deliver at least some financial burden to their customers – as was seen during Trump’s first trade war.

Compared to this period, Trump imposed rates this time can be felt more widely in the United States as he captures more consumer goods such as computers and stainless steel cockware. The question is whether the impact of prices will be interim or lasting.

US Treasury Secretary Scott Basant has said that only “one -time adjustment” can be. Once the price change will still be painful for the families and if inflation expects increases, the wage and price hike ends.

Federal Reserve Chair Jerome Powell said in mid -March that inflation “has now started to move, we think in response to rates partially,” but his base case imagines any tariff -powered conflict in the price rise.

Can prices rise globally inflation?

Yes If countries retaliate against US taxes with US revenue, it can raise prices in their domestic economies as US goods become more expensive. The Organization for Economic Cooperation and Development has increased its estimates of inflation in major economies in December 2025 and 2026.

China is an outlet because it is tied up with a permanent decline in prices, known as deflation, between a long height in domestic demand, as well as more production. The world’s second largest economy can work somewhere else to counter inflation, as it mainly exports low prices globally through its cheap goods.

Is inflation bad? Should the target be zero inflation or even defense?

Defration is a sign of weakness in the economy. Although the falling prices may look like a good thing for consumers, it puts pressure on companies’ earnings and, in turn, the wages and demands of the workers put the spiral at risk.

Zero inflation is also not ideal. Economic growth will naturally occur with some inflation when salaries increase and demand for goods and services increases. The key problem is the rate on which prices are climbing. If they go beyond the wage rise, the average person’s purchase power decreases, and the households and the wider economy are damaged.

Are prices rising faster than wages?

Yes Globally, workers have been feeling the rise in inflation in recent years. In almost two-thirds of the 38 member states of the OECD, real wages, which are adjusted to inflation, live below the appearance level in the early 2021-just before the rise in prices.

According to the Federal Reserve Bank of Dallas, workers were severely targeted in the United States, by mid -2012022, when inflation increased there and real wages fell the highest in about 25 years.

What does inflation run?

Extensive inflation can come from three channels: supply, demand and expectations. Obstacles to the supply of goods and services have a direct impact on their prices, such as when pandemic diseases limited the availability of products and some companies increased their prices.

The pressure towards demand can come when the government increases the supply of money by spending more or paying a lower tax, or when the central bank reduces interest rates. This was in the context of the pandemic disease when policy makers flooded their economies with trillions of dollars to help homes and businesses. If the demand is higher than the production capacity of the economy, inflation is a potential consequence.

As far as expectations are concerned, the biggest concern among the central bankers is that once the inflation is entered, it strengthens itself. If business owners expect inflation to be higher than normal, they raise prices. With higher prices, workers demand more wages, which force companies to increase prices and further inflation to fuel.

In extreme cases, it can stimulate something known as a wage -price spiral, where high salaries and more costs become a loop, which is unrelated to things in the larger economy. It stood up in the United States by the time of the 1970s and early 1980s, chaired by the then chair of Paul Wulkar, increased the interest rate by 20 %, which gave birth to two recession, eventually to reduce prices.

How do central banks fight inflation?

Their main source is to increase interest rates on which banks lend to each other. The idea is that when borrowing for banks becomes more expensive, they will deliver the cost to companies and consumers, who will borrow and spend less, thus cooling the economy – which will have to pay more costs for their mortgage, potentially reduce their costs somewhere else.

But adjusting interest rates is often considered to be a two -to -to -tool, meaning that it is difficult to use health against everything that makes the economy sick. Hiking rates can eliminate inflation, but it also reduces overall economic growth and is at risk of promoting recession and pose a risk by preventing costs. Some central banks, especially in the emerging markets, are also limited that they can take their interest rates out of synchronization with what they do in the United States, as it will affect the cost of their currencies against the dollar.

In the United States to bring the post -post -Post -Post -Returned rise, Fed increased interest rates to its highest level in more than two decades in 2024. This increased the increase in prices by more than 9.0 % to about 3.0 %.

When inflation returned to 2.0 % goal and economic growth risks, the feed began to reduce interest rates – as other central banks did. But the whole world has been complicated and prices are pending. According to the World Bank, about one -third of the economies are expected to go beyond their goals by the end of 2025.

Why is inflation proving more than stubborn?

Many factors that increase inflation are still roaming during the post -re -opening of the world. On supply, Chinese factories reopened, companies obtained goods through goods, and energy prices returned to normal after Russia’s attack on Ukraine. But still some items, such as medical devices, as well as workers in industries, are very important to keep trade dynamic, including truck drivers. These pressures were encountered and wanting to maintain their profits, companies are still raising their prices at a slow pace.

Climate change and animal disease have also played their role, which increases food prices globally. In Japan, the heat has eliminated the country’s rice supply, while the worst outbreak of birds flu in the United States has killed millions of chickens and egg prices have been pushed forward to record the height this year.

Is there a risk of stagnation?

Status is a stable economy and a combination of permanent inflation. This is a rare trend and the governments want to avoid because inflation or just recession can be difficult to solve.

During recession, central bank can reduce interest rates to promote demand or to promote quantitative softening – ‘print’ money to buy official bonds, pursue the cost of these notes and reduce interest rates to borrow and cost costs. On the contrary, during high inflation hours, central banks can increase interest rates and return to quantitative softening.

But when it comes to stagnation, policy makers are essentially trapped – a reduction in interest rates can lead to further increase in prices, while hike in prices will further weaken the economic growth.