TL;DR: My suspicion is that we won’t see a major increase in inflation in the next couple of years, at least in Australia. There are many logical assumptions that need to be met for “Trump says during an election campaign that he wants to increase tariffs” to cause “Australian mortgages cost more”, and I’m not convinced that all (or even many) of these logical assumptions hold. There are also more mundane reasons suggesting that Australian mortgages will decrease in the next few years (and I happen to find these reasons more convincing). But basically I’m not sufficiently convinced by reasoning about Trump’s policies to act in any way other than how I’m already acting, at least when it comes to my mortgage.

Of course, this is an exercise in predicting financial markets. Inflation next year could be -0.5% or it could be 15%; nobody really knows, my guess is just a guess, and I could be very wrong. If I were actually an expert at this, I wouldn’t waste this skill on writing blog articles! (I’d simply get filthy rich, donate all the money to fish and shrimp welfare, then run away and become a cave hermit.)

Here’s some thoughts:

Some talking heads in the news give some thoughts that I find mildly compelling (I don’t give sources but you can find speculation like this all over the news right now):

  • if Trump increases tariffs, other countries might retaliate, and this would increase inflation globally (or they might not!)
  • if the US dollar increases, countries that import lots of American goods might also see inflation increases (or they might not!)
  • But (and it’s a big but!) this depends on how other countries respond to any tariffs, e.g. countries that switch from trading with the US to trading with China might see decreasing inflation (or they might not!)

I was curious about how inflation looked in Trump’s first term:

  • US inflation rate: during Trump’s first term, exceptionally low (1.23% to 2.44%); during Biden’s term, exceptionally high (4.12% to 8.00%)
  • Aus inflation rate: during Trump’s first term, exceptionally low (0% to 2.2%); during Biden’s term, exceptionally high (1.1% to 7.8%)
  • Aus average home loan variable rate: during Trump’s first term, exceptionally low (4.52% to 5.29%); during Biden’s term, somewhat higher though not exceptionally (4.52% to 8.52%)

(I didn’t record my sources—I’ve clocked off for the day, sue me—but those numbers are easy to find)

Not saying this was Biden’s fault—on the contrary, it wasn’t really his doing. There’s an article on Wikipedia about this. An economics study looking at the cause of inflation in 2021 and 2022 says (this is from a popular news article summarising the study): “most of the rise in inflation in 2021 and 2022 was driven by developments that directly raised prices rather than wages, including sharp increases in global commodity prices and sectoral price spikes driven by a combination of pandemic-induced kinks in supply chains and a huge shift in demand during the pandemic to goods from services. Fiscal policy contributed to the inflation, but primarily through its effects on consumer demand for commodities and goods in limited supply rather than through the labor market.” But the fact that inflation was unusually low under Trump gives me pause.

Some news articles from the past 24 hours are giving various reasons why this second round of tariffs would be more significant than the tariffs imposed in Trump’s first term. e.g. they’re bigger or whatever. I don’t find these reasons super convincing. Generally speaking, a politician’s election promises are not a perfect guide to the policies that the politician pursues after winning the election, let alone the policies that the politician succeeds in implementing. So I’m not convinced that reasoning like “Trump did X during his first term and says that he is going to do Y in his second term, so we can compare X and Y” necessarily holds up.

What about the “null model”—that is, what if you take a naive view by forgetting about politics and just looking at the trends in the variable home loan rate over time?

  • A warning: this is using the past behaviour of a financial market to predict its future behaviour! This is obviously very fraught, as financial markets don’t always behave in this predictable way. But it can help put things into context.
  • Currently the home loan rate is a little bit higher than it has been in the past few years (6-8%ish compared to ~5% over the past few years, exact numbers depend heavily on your source) but not that much higher, but it’s significantly lower than the horrific ~15-18% during the 1980s and 1990s.
  • So if you think interest rates tend to behave how they have behaved since 1960, then interest rates right now seem about average or maybe slightly below-average.
  • If you think interest rates tend to behave how they have behaved over the past decade or two (which I think is a more likely view of reality), then this might suggest that we’re in a period of unusually high interest rates and we’d expect interest rates to fall in the future.
  • The RBA’s stated target for inflation in Australia is between 2 and 3%. This pushes me towards thinking that, all else being equal, Australia’s inflation rate is drawn towards the 2 to 3% range (as there is somebody in an office in Canberra whose job is to pull levers to deliberately bring this about).

Crowd forecasts of inflation rates:

  • Metaculus has this forecasting question predicting US inflation each year for the next few years, but it’s hard to tell how many forecasters have participated in this question and the comments section seems very quiet
  • GJ Open asks “What will be the 12-month percentage change in the US Consumer Price Index (CPI) for July 2025?”. 33 forecasters give a crowd forecast of somewhere in the 1.2 to 3.6% range (see the link for details). The higher end has increased slightly in the past 24 hours at the expense of the lower end, but not heaps, and the high end is still pretty modest (e.g. nobody is predictig over 5%.)
  • Another very similar question with similar results from 19 forecasters by GJ Open here, no change in the past 24 hours but might just be that no nerds have logged on yet