If Donald Trump becomes president, he’s going to wave a magic wand on his first day in office and poof! The cost of food, energy, insurance, and many other things will suddenly plunge.
This is the gist of Trump’s riff on inflation, which he used to blame on President Joe Biden and now blames on Vice President Kamala Harris. When Biden was the Democratic presidential candidate, the inflation that peaked at 9% during his second year in office was a major electoral liability. Now that Harris has replaced Biden, Trump obviously hopes voters will transfer their anger over inflation onto her.
If the president had the power to single-handedly slay inflation, you might think Biden would have done it. Biden, in fact, did just about everything possible: releasing oil from the national reserve to lower energy prices, jawboning retailers and producers about “corporate greed,” and attempting to block corporate mergers that might dilute competition. Yet the rate of inflation has only fallen gradually and most of the price hikes of the last three years remain.
There’s not very much any president can do to lower prices in a free-market economy driven by supply and demand. Yet Trump insists he will be uniquely deflationary. In campaign speeches, Trump routinely highlights the inflated cost of groceries, gasoline, electricity, insurance, and housing. “Prices will come down,” Trump promised on Aug. 11. “You just watch. They’ll come down and they’ll come down fast, not only with insurance, with everything.”
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Trump specifically says he would lower the cost of auto insurance during the first 100 days of his second term. He vows to slash energy costs “by half, at least half.” He claims his plan to deport millions of undocumented migrants will lower housing costs by opening up properties that non-migrants would otherwise be living in.
BS alert: None of this is going to happen. Trump won’t have any special power over inflation that prior presidents failed to muster.
Start with auto insurance, which is up by 55% since Biden took office in January 2021. Car insurance costs have spiked for a few reasons: Cars are increasingly loaded with sophisticated electronics that are expensive to repair. During that same time period, repair costs have jumped 38%. Fatality rates have also risen since the COVID pandemic, which means crashes are more severe and costly. Insurers are mostly passing on their own higher costs to their customers.
Home insurance is getting costlier too, as the severity of storms worsens and the cost of repairs goes up. Some insurance companies have actually been losing money on their home and auto lines, since they can only adjust rates upward on an annual or semi-annual basis. Losses reveal that price gouging isn’t the problem.
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Most states regulate insurers, so the mechanism is already in place to clamp down on companies that bilk consumers. Here’s what states such as Florida and California have learned as premiums have soared: If insurers can’t set rates at levels allowing them to turn a profit, they’ll simply leave the market. Regulators sometimes have no choice but to allow large premium hikes because if they don’t, nobody would be able to buy insurance.
How could Trump improve on what states are already doing? Any further effort to cap premiums would drive more insurers from unprofitable markets. If Trump tried to order insurers to write policies at a loss he’d basically be trying to nationalize the insurance industry, and he’d lose in court. There are simply no federal tools for addressing this problem.
Trump’s energy plan is “drill, baby, drill,” and he thinks that a gusher of new fossil fuel production during a second Trump presidency will lower the cost of gasoline and electricity. In theory, more supply usually does lower prices. But energy producers get to have a say, and they’re pretty happy with the tighter supply and higher price levels under the Biden administration.
Biden and Harris rarely point this out, but production of both oil and natural gas has hit new record highs during Biden’s presidency. That’s not because of anything Biden has done. It’s because of the market. Energy firms are drilling more because they’re making good profits with oil prices at $70 per barrel or higher. They’re also operating fewer drilling rigs than in the past, in part because drilling has become more efficient and also because they want to keep capacity tight.
This is a complete reversal from market conditions during the Trump presidency, when drillers and their investors were willing to sacrifice profit margins in order to grab market share. That strategy flamed out during COVID, when oil prices plummeted and hundreds of smaller operators went out of business. The mighty Exxon Mobil (XOM) lost a staggering $22.4 billion in 2020. Since that debacle, the whole industry has shifted to a focus on profitability over market share and a mantra of “capital discipline.”
Trump’s premise is that he will show more love to the fossil fuel industry than Biden has, and it will produce more energy, lowering prices — along with their profits. Fat chance. Bellwether Exxon earned its biggest profit ever in 2022 — $56 billion — when oil prices peaked above $120 and gasoline hit $5 per gallon. Same goes for natural gas, which helps determine electricity costs. Producers want moderately high prices that allow them to maximize profits without enraging consumers. What they’ve learned not to do is overproduce and basically subsidize low energy costs through losses, which is what they did during much of the Trump presidency.
As for housing, it’s possible that some units housing migrants would open up if Trump managed to send millions of them back to their home countries. But this also entails dubious assumptions. Would first-time homebuyers currently priced out of the market be interested in the same properties where migrants live, often in cramped conditions? Do they even live in the same areas?
On food and other consumer goods, Trump doesn’t exactly say how he’ll bring prices down. “We’ll be able to reduce prices between regulation and having a tremendous supply,” he generalized on Aug. 11. What does he mean by “regulation?” Trump bashes Harris’s plan for controlling some prices as “communism,” so presumably he wouldn’t do that. Perhaps Trump will devise the world’s first free-market price-control plan.
There’s one thing Trump doesn’t talk about: labor costs, which are a big part of the reason many prices have gone up and stayed up, especially in the food industry. During Biden’s tenure, labor costs have risen 16%, while they rose just 13% during Trump’s four-year presidency. That might sound like a ding on Biden, but labor costs are the same thing as pay for workers. So pay has risen by more under Biden and Harris than under Trump. Pay raises usually stick, one of the biggest reasons many prices have gone up and stayed up. Maybe Trump will find some magical way to turn that back too.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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