Trump Says Taming Inflation Requires Energy Cost Reductions and Supply Chain Overhaul

U.S. President-Elect Donald Trump at the Elysee Palace in Paris, France, on Dec. 7, 2024. Oleg Nikishin/Getty Images

President-elect Donald Trump told Time magazine in an interview published on Dec. 12 that his campaign pledge to bring down prices for U.S. households hinges on addressing both high energy costs and fixing “broken” supply chains.

In the interview with Time magazine, which named Trump “Person of the Year” for 2024, the president-elect was asked whether his presidency will be a “failure” if he doesn’t deliver on the key campaign promise to lower grocery prices for Americans.

Trump acknowledged it will be “very hard” to bring down prices from elevated levels and expressed confidence that this can be achieved under his administration by adopting a comprehensive policy mix. In addition to Trump’s “drill, baby, drill” agenda of unleashing domestic energy production on the back of deregulation and faster permitting, the president-elect identified fixing persistent supply chain bottlenecks as a key part of the inflation reduction equation.

“I think that energy is going to bring them down. I think a better supply chain is going to bring them down,” Trump said. “The supply chain is still broken.”

Supply chain disruptions were widely recognized as a major factor driving inflation in the two years following the COVID-19 pandemic. Their continued effect on current inflation remains less clear.

A 2023 study from the Federal Reserve Bank of San Francisco estimated that supply chain disruptions accounted for roughly 60 percent of above-trend inflation in 2021 and 2022, a period when inflation peaked at 9 percent. Similarly, a Cleveland Fed study identified supply chain disruptions as the single most important driver of inflation from January 2020 to December 2022.

Further, a 2023 study from the National Bureau of Economic Research (NBER) identified supply-side shocks as the dominant drivers of inflation in the early stages of the pandemic and post-pandemic era. In later stages, this shifted to demand-side dominance in inflation dynamics due to massive government spending that drove a combination of consumer demand, labor market tightness, and upward wage pressures.

A more recent report based on the Federal Reserve’s Global Supply Chain Pressure Index (GSCPI), which tracks factors like shipping and airfreight costs, offers additional insights. The GSCPI index showed extreme supply chain pressures during 2021 and 2022, with readings exceeding +4, far above the typical range of +1 to -1 observed from 2010 through early 2020. Beginning in February 2023, the GSCPI turned negative, indicating an easing of supply chain pressures, and has mostly remained slightly below zero since then.

While the mostly negative GSCPI readings of recent months suggest supply chains have largely normalized, they may not fully offset the inflationary impact of the extreme pressures seen in earlier years. The Producer Price Index (PPI), which tracks business input costs, underscores this complexity. In November, headline PPI rose 0.4 percent month-over-month and 3 percent year-over-year. Core PPI, which excludes volatile food and energy prices, edged up 0.2 percent monthly and 3.4 percent annually, signaling that some supply-side bottlenecks persist in certain industries.

EJ Antoni, an economist at the Heritage Foundation, told The Epoch Times that the supply chain normalization of recent months suggests that demand-side factors are the predominant factor in the current chapter of the inflation story.

“We didn’t have inflation simply because supply chains were snarled; we had inflation because the government spent, borrowed, and printed trillions upon trillions of dollars it didn’t have,” Antoni said.

Trump did not detail specific solutions for the lingering supply chain issues. He emphasized the importance of addressing them as part of a comprehensive approach.

His broader strategy to combat inflation includes reducing reliance on offshore supply chains by incentivizing domestic production. For instance, he has proposed lowering the corporate tax rate from 21 percent to 15 percent for companies manufacturing in the United States.

In addition to addressing energy and supply chains, Trump has pledged to extend tax cuts, roll back regulations, and renegotiate trade policies to bolster American industry. “We’re going to see what happens,” Trump said in the Time interview, adding that “this country is bloated with rules, regulations, and with, frankly, people that are unnecessary.”

Trump highlighted plans to streamline the federal workforce by shifting workers from government jobs to the private sector. “We are going to need a lot of people in a lot of other jobs. We’re looking to get people into private sector jobs where they can do better and be more productive,” he said, suggesting he believes this approach will boost economic efficiency and could ease private sector wage pressures.

Kevin Stocklin contributed to this report.