Trump 2.0 Could Be Thwarted By Inflation, Mohamed El-Erian Notes Ahead Of CPI Data Release

Prominent economist Mohamed El-Erian highlighted Bloomberg Opinion columnist John Authers‘ analysis showing how inflation could derail President-elect Donald Trump‘s economic agenda before it begins, as markets await crucial December Consumer Price Index data.

What Happened: El-Erian, Chief Economic Advisor at Allianz, shared Authers’ opinion piece on Tuesday revealing stark political divisions in inflation expectations. According to Authers’ analysis of University of Michigan data, Democrats anticipate 4% inflation while Republicans project just 0.1% – a historically low level not seen in nearly 70 years without major oil price declines.

The December CPI report, due Wednesday, is expected to show headline inflation rising to 2.9% year-over-year from November’s 2.7%, according to consensus estimates. Core inflation, excluding food and energy, is forecast to hold steady at 3.3%.

Market indicators suggest persistent inflation pressures. Authers notes the 10-year breakeven rate, measuring market-based inflation expectations, has climbed to the top of its two-year range. The University of Michigan’s consumer survey showed five-year inflation expectations at 3.3%, the highest since 2008.

See Also: South Korean President Yoon Suk Yeol Arrested — KOSPI Edges Higher Despite Political Upheaval, Won Stable

Why It Matters: “If inflation remains sticky, monetary policymakers will be responsible,” said Joe Lavorgna, former Trump administration economic advisor at SMBC Nikko, questioning the Federal Reserve’s recent rate cuts despite upward revisions to growth and inflation forecasts.

The inflation outlook complicates Trump’s proposed economic policies, including planned tariffs that could fuel price pressures. While reports show that the Trump team is studying gradual tariff increases under emergency powers, any significant trade barriers could challenge efforts to contain inflation.

Fed funds futures currently show a 55% probability of rate cuts by June 2025, though persistent inflation could delay monetary easing into late 2025 or 2026, potentially constraining Trump’s growth initiatives.

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