Zandi says tariffs fueling US price surge; claims policy shift could quickly cool inflation

Moody’s Analytics chief economist Mark Zandi has now raised a new warning for Americans. Zandi said that America’s stubborn inflation problem is not a mystery but it’s the result of deliberate policy decisions. In a breakdown shared via a post on X (formerly known as Twitter) Zandi noted that inflation has run above the Federal Reserve’s 2% target for 64 straight months, with headline inflation at 3.5%. He also wrote that when you ‘net out the inflation tailwinds and headwinds, it’s clear the uncomfortably high inflation is the result of policy choices’. Zandi also said that the Americans are right to view high inflation and the increasing cost of living as their biggest financial challenge, and he argues that the roots of the problem lie in trade and immigration policies that have reshaped the economy.“Most Americans consider persistently high inflation and the resulting higher cost of living their number one financial problem. With good reason: top-line inflation is running no less than 3.5%, well above the Fed’s 2% target. And inflation has been well above target for five years running. The table breaks down last year's inflation and this year's expected inflation into their underlying factors. Netting out the inflation tailwinds & headwinds, it’s clear the uncomfortably high inflation is the result of policy choices,” wrote Zandi.Tariffs and restrictive immigration are fueling price pressuresAccording to Zandi, two major policy decisions are directly adding to inflation: broad‑based tariffs and highly restrictive immigration laws. He estimated that tariffs imposed under the Trump administration added 0.5 percentage points to inflation last year and will add another 0.2 points this year.But his sharpest warning was about immigration. Zandi said tough immigration policies are steadily adding to inflation because they reduce the available workforce in essential sectors such as construction and agriculture. With fewer workers, labor shortages intensify, pushing wages and production costs higher — and those costs ultimately show up in consumer prices.He added that the Iran war and related energy surges have compounded these pressures. Without these policy‑driven hurdles, Zandi said inflation would have been 2.2% last year and “effectively at the Fed’s target” this year. “Higher broad-based tariffs, a policy choice, added almost 0.5 percentage point to inflation last year and will add another 0.2 this year. Highly restrictive immigration, a policy choice, is steadily adding to inflation as the workforce in construction, agriculture, and other industries is diminished. The Iran war and the surge in energy prices will add another 0.7 point this year. Without these policy-related pressures, inflation would have been 2.2% last year and a bit above 2% this year – effectively at the Fed’s target,” said Zandi in a post on X.Disinflation forces are working — but being overpoweredZandi emphasized that underlying economic forces are actually leaning against inflation. A soft job market, moderating labor costs, rising vacancy rates, falling rents on new leases, and weak vehicle prices are all pushing inflation downward. The Bureau of Labor Statistics reported a 0.4% drop in CPI in June 2026, the largest monthly decline since April 2020.But these natural disinflation trends are being overshadowed by policy choices that raise costs across the economy. Zandi’s conclusion is blunt: “If the policies end, inflation will recede with them. High inflation is a policy choice. So too, it turns out, is low and stable inflation.”“Unlike the pandemic or Russia’s invasion of Ukraine, the forces lifting inflation today are largely tied to policy decisions – on trade, immigration, and foreign affairs. These policies may have objectives beyond inflation, but their costs are showing up in higher consumer prices, from groceries and electronics to the cost of filling the tank. At the same time, the decomposition shows that disinflation is already at work. A soft job market and moderating labor costs, rising vacancy rates and falling rents on new leases, and weak vehicle prices are all leaning against inflation. If the policies end, inflation will recede with them. High inflation is a policy choice. So too, it turns out, is low and stable inflation,” Zandi concluded.Get the latest technology news and updates. Download the TOI App.