Why One Prominent Economist Sees Inflation Surging To 4% In 2026

Key Takeaways

• While the majority of economists expect inflation to remain stable or fall this year, one forecaster believes it could rise to 4%.
• Tariffs and other economic policies of the Trump administration have only put moderate upward pressure on inflation so far, but economist Adam Posen says the effects could simply be taking longer than expected to play out.

Inflation is probably going to cool down this year. Or is it?

A prominent economist—Adam Posen, president of the Peterson Institute for International Economics—has broken with the consensus among experts that price increases are likely to simmer down over the course of 2026, forecasting that inflation will surge to a 4% annual rate by the end of the year.

Most other economists predict it will fall to some degree from its current level of a 2.4% annual increase in January, the most recent data available.

What This Means For The Economy

Surprisingly high inflation would do serious damage to the economy and household budgets, as they are still adapting to the post-pandemic surge in prices.

Forecasting the economy is notoriously difficult, and Posen is an outlier. But his prediction is grounded in very real trends. If he is correct, we might see an unwelcome return of the public’s least favorite economic phenomenon.

Tariffs, tax cuts, the immigration crackdown, the Federal Reserve, and human psychology could all play a role in pushing up prices faster than most experts anticipate, Posen argues.

Related Education

Inflation: What It Is and How to Control Inflation Rates

What Is a Tariff and Why Are They Important?

Companies have, for the most part, raised their prices slowly in response to the new import taxes, Posen notes. That could mean the price increases will continue for longer, stoking inflation in the year ahead. Posen estimates tariffs will add 0.5 percentage points to the inflation rate by midyear.

“Historical evidence shows that tariff pass‑through tends to be gradual, with consumer prices rising only as firms revise pricing with a lag,” he wrote in a blog post last month. “That pattern is playing out again: companies have now depleted the inventories they stockpiled ahead of tariff implementation. And although CEOs have been reluctant to impose a sharp, one‑time increase, they are raising prices in smaller increments over a longer period.”

The picture could get even more complicated after the Supreme Court struck down Trump’s tariffs on Friday. Trump imposed 15% “worldwide” tariffs over the weekend.

Tax season could provide a lift to inflation in more ways than one. Trump’s signature budget legislation, the One Big, Beautiful Bill Act, lowered taxes, which will likely encourage consumer spending. It also cut the IRS budget, leading to less enforcement of existing tax laws. Both effects could lead to more spending, which tends to fuel inflation.

Trump’s crackdown on immigration could also prove inflationary. Employers that typically hire many foreign-born workers, such as in agriculture and home health care, may have to raise wages to attract workers.

Then there’s the human factor. The burst of high inflation after the pandemic may have permanently altered people’s expectations of price increases, which economists believe can be a self-fulfilling prophecy.

“Households remember salient price increases—eggs, meat, child care, home repairs—far more vividly than aggregate statistics,” Posen wrote. “These memory effects persist for years or even generations.”

A common theme running through Posen’s list of inflationary forces is that their effects did not hit the economy all at once, but instead are building up slowly over time. In other words, the sense of relief inspired by a few recent reports showing relatively tame inflation may be premature.

Just how lonely is Posen in his point of view?

In a Wall Street Journal survey of 72 economists in January, most predicted inflation as measured by the Consumer Price Index would decrease or stay within the 2% range by December 2026. Nine said it would tick up to an annual increase in the low 3% range. Only one independent forecaster, Amy Crews Cutts, joined Posen in calling for a significant flare-up and predicted CPI inflation would accelerate to a 5.3% annual increase.

Posen is not alone, however, in anticipating that the fallout from Trump’s economic policies may take more time to play out than some experts initially thought.

Ben Harris, director of economic studies at the Brookings Institution think tank, published a blog post Thursday examining potential reasons Trump’s policies, which were widely panned by economists, haven’t “tanked” the economy. One major reason is that shocks like tariffs and deportations just take time to work their way through the system.

“If these shocks persist, their impact will likely be more damaging than what we observed in 2025,” Harris wrote. “The U.S. economy has proven resilient thus far—only time will tell if it can continue to absorb these shocks and persist on its path of slow, but sustained expansion.”

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