Trump's Inflation or Deflation?
Deflation is a decrease in the general price level of goods and services, occurring when the inflation rate falls below 0%. While it can increase the purchasing power of money, prolonged deflation can lead to economic problems such as reduced consumer spending, higher unemployment, and increased debt burdens. Even though prices may be lower, people do not spend as much.
Inflation is the increase in the average price of goods and services over time, which reduces the purchasing power of money. It is typically measured using a price index, such as the Consumer Price Index (CPI). Here, prices are high, so people also do not spend as much.
Tariffs burden the pocketbooks of the average American. The US population stands to shrink with a decline in births and the curtailing of immigration: Less people to work, spend and pay taxes, older people who do not consume and tax the healthcare system... and you can see where it is all headed.
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America is barrelling toward a 'deflationary shock' as 3 forces hit consumer demand, a top economist says
Jennifer Sor
Fri, August 15, 2025
There's a risk that inflation could turn negative soon, David Rosenberg says.
The top economist thinks the US is headed for a "deflationary shock."
Tariffs, immigration policies, and an aging population could hit consumer spending and growth, he said.
Inflation-weary consumers would be forgiven for thinking falling prices are a good thing, but that's not necessarily the case. Disinflation is usually welcomed news, but deflation signals something more dire is going on in the economy.
And deflation is exactly what may be in store for the US, according to one top economist.
David Rosenberg, the president of Rosenberg Research, thinks that America could be headed toward a "deflationary shock," a situation where prices decline rather than merely increase at a slower pace.
While consumers might perk up at the idea of lower prices, deflation is often thought to be a more difficult problem for policymakers to solve than high inflation. The Fed can raise interest rates to combat higher prices, but, in the case of deflation, central bankers can only lower interest rates until they hit 0% before needing to turn to other options to boost the economy.
That's one reason why countries like Japan and China, which have been slammed with deflation crises in the past, have seen their economists mired in long periods of anemic growth in the years that followed.
The US could be facing a similar fate, Rosenberg said, adding that he believed America was "following the footsteps" of those two nations in particular.
"We are now staring down the barrel of a deflationary shock, and it amazes me how all the bond bears, inflation-phobes, and Fed policy hawks are missing this secular shift as they continue to play by the old rules," Rosenberg wrote in a report on Wednesday.
He sees three reasons the US is headed for an era of deflation.
Tariffs could actually be deflationary
President Donald Trump's tariffs could actually have a deflationary effect over the long-term as consumers rein in spending, Rosenberg said.Demetrius Freeman/The Washington Post/Getty Images
Tariffs are thought by economists to be inflationary, as companies can pass along the cost of import duties by raising prices for consumers.
But there's also a deflationary aspect to tariffs: Higher prices cause consumers to spend less, which could lower prices as demand falls relative to supply, Rosenberg said.
There are already signs that consumers are beginning to tighten their belts. While inflation rose to 2.7% in July, retail sales have been pretty weak, growing 0.6% in June after a 0.9% contraction in May, according to US Census Bureau data. July is expected to show retail sales grew 0.5%.
"GDP is, after all, only about spending," Rosenberg said, referring to how consumer spending accounts for around two-thirds of GDP growth in the US.
Trump's immigration crackdown could hit growth
Trump's immigration crackdown will slow population growth, another headwind to the US economy, Rosenberg said.© Immigration and Customs Enforcement/AFP Charles Reed
Slower spending among Americans could collide with the near-term impact of President Donald Trump's immigration policies. Reduced immigration is likely to result in less consumer spending, another factor that will lower prices and hurt economic growth, Rosenberg said.
Immigration flows have already started to drop, with new entrance visas to the US plunging 20.5% in May, he said.
Meanwhile, Rosenberg added that most immigrants in the US are between the ages of 35 and 54, the age range where spending tends to peak in a lifecycle.
"In the final analysis, the demand destruction coming from the trade file, along with lower growth in future spending due to a reduced immigrant consumer base, should lead to lower inflation," he wrote.
"Every young immigrant household not allowed into the US accelerates the aging consumption cliff that lies around the bend," Rosenberg added.
An aging population will be a drag on spending
Older Americans tend to save more than they spend, which could hit economic growth, Rosenberg said.Associated Press
Those factors are exacerbated by the fact that America's population is rapidly growing older, and people aren't having as many kids as they used to.
According to the latest projections from the US Census, the number of Americans 65 and older is expected to soar to 82 million by 2050, up 47% from 2022 levels.
An aging population can hit economic growth, given that older Americans tend to save more than they spend. The change in someone's likelihood to consume drops from 0.94 at age 35 to around 0.67 at age 65, per Rosenberg's analysis.
"The fact that this is happening in such a highly leveraged economy is only going to exacerbate the deflationary trendline in the not-too-distant future," Rosenberg said, referring to high debt levels in the US that could limit the government's ability to spend on other things to stimulate the economy.
Rosenberg, who's known as a contrarian on Wall Street, has made a lot of bearish calls about the US economy in recent years. Earlier in this year, he said he still believes the US was headed for a recession, and speculated that a downturn could materialize as soon as mid-summer.
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