There’s an economic term that had fallen out of fashion until it reappeared this year: stagflation, which means stagnant economic growth plus inflation. A number of economists have warned that President Donald Trump’s tariff policies are likely to produce exactly that — rising prices and a sluggish economy.
The latest GDP report shows the economy shrank during the first quarter — for the first time since the pandemic shutdown. And prices went up by 3.5% over the same period, according to the personal consumption expenditure price index, compared to 2.4% during the prior quarter. That kinda sounds like stagflation, right?
The short answer is, no, we were not experiencing stagflation at the start of the year.
“There were a lot of special occurrences during the first quarter of 2025,” said Julie Smith, an economics professor at Lafayette College.
As we’ve been saying a lot lately, companies have imported like crazy to get ahead of tariffs. And imports are subtracted from gross domestic product.
But if you look beyond those imports? “The economy is doing OK,” Smith said.
In the first quarter, consumers were spending, unemployment was fairly low, and inflation was higher than the Federal Reserve would like, but not by too much. That’s not a stagflationary economy.
But that was the economy through the end of March. And as Tim Quinlan, a senior economist at Wells Fargo, pointed out: “March is ancient history.”
The Trump administration’s barrage of tariffs convinced analysts to cut their expectations for GDP growth and raise their expectations for inflation.
“Does that mean that stagflation is inevitable? No, but it certainly suggests that the implementation of tariffs and the uncertainty around a trade war do introduce a stagflationary shock to the economic outlook,” Quinlan said.
There are anecdotal signs of a weakening economy, said Stephanie Kelton, an economics professor at Stony Brook University.
“Many small businesses are already saying, ‘If this continues for even just a little bit longer, I can’t survive, I’m going to close my business.’ That means layoffs,” she said.
And some big companies are saying they don’t have the margin to absorb tariffs.
“And so I am going to have to pass on to consumers some, most, or all of the increased costs,” Kelton said.
That would come, of course, in the form of higher prices.
