As the Trump administration ramps up expulsions of immigrants, economists fear a direct impact on consumer prices in the United States.
According to Mark Zandi, chief economist at Moody’s Analytics, the current trend could push inflation from 2.5% to nearly 4%—a surge of 60%—by early next year.
“The foreign-born labor force is shrinking, and the overall workforce has been flat since the start of the year,” Zandi told Fortune. “That’s creating strain across many sectors, driving up costs and inflation.”
Data released by the Labor Department confirms the trend.
The Producer Price Index (PPI), which measures wholesale inflation before it reaches consumers, rose 0.9% between June and July—the sharpest monthly increase since 2021, in the aftermath of the coronavirus pandemic.
On a yearly basis, the index jumped 3.3%. More than three-quarters of that rise came from higher service costs (+1.1%). Meanwhile, the core consumer price index, excluding food and energy, climbed 0.2%, Fortune reported, citing Zandi.
For Zandi, these developments are no coincidence: “It’s the southern border being closed, it’s the deportations, it’s also voluntary departures. Immigrants are afraid. They’re leaving the country, they’re not coming in, and they’re not working.”
He estimates that the annual inflow of migrants—both documented and undocumented—has fallen from about 4 million people in 2023 to just 300,000–350,000 today. “That’s a massive change,” he said, one that is directly affecting sectors heavily reliant on immigrant labor: construction, agriculture, manufacturing, transportation, distribution, hospitality, retail, elder care, and child care.
Prices for fresh and dry vegetables, for example, have surged by nearly 40%. Other factors such as tariffs and weather also play a role, he acknowledged, but restrictive immigration policy remains, in his view, a key driver. “You can see it in the price of meat, agriculture, food processing, haircuts, dry cleaning. The fingerprints of restrictive immigration policy are all over the inflation data.”
The Trump administration, however, rejects any link between deportations and rising prices. Spokesperson Abigail Jackson framed the policy as a strategy to mobilize domestic labor: “More than one in ten young Americans are neither in school nor at work,” she said. The administration’s goal, she argued, is to “protect the American workforce” and ensure that new jobs “go first and foremost to U.S.-born workers.” She added: “Since Donald Trump returned to the White House, 100% of new jobs have gone to native-born Americans.”
Yet even among conservatives, some caution against labor shortages. Steve Moore, an economist at the Heritage Foundation and close adviser to Trump, admitted: “I’m worried about a labor shortage. The deportations of immigrant workers could have a slight impact on wages, and therefore on prices.”
Zandi’s warning reflects a deeper divide among economists. His camp—which includes analysts from Morgan Stanley, Barclays, and Bank of America—argues that the slowdown in hiring stems from an artificially constrained labor supply caused by deportations, border closures, and what Zandi calls “self-deportations.”
The opposing view is that weaker job growth reflects a genuine drop in labor demand, with businesses holding back amid economic uncertainty. Shrinking payrolls in manufacturing, transportation, and warehousing, as well as fewer job postings, suggest a structural slowdown, according to Fortune.
For Zandi, the distinction is critical: “Demand-driven inflation has very different implications than supply-driven inflation. Cutting interest rates won’t bring immigrants back.” He also believes that the inflationary effects of immigration restrictions are more lasting than those of tariffs. “Tariffs are often temporary. Restrictive immigration creates shortages, higher labor costs, and rising wages—and that dynamic can become self-reinforcing.”
This uncertainty complicates the task of the Federal Reserve.
If inflation is driven mainly by supply constraints, monetary easing will have little effect. Bank of America economists have already warned of stagflation risks—sluggish growth paired with high inflation—and do not expect any rate cuts in 2025.
For Zandi, one solution is clear: ease immigration restrictions. “If we had a rational immigration policy that allowed workers of all skill levels into the country, that would be a real game changer,” he said, stressing that immigrants play a central role in innovation and entrepreneurship.
Sources: Fortune (Eva Roytburg), interviews with Mark Zandi (Moody’s Analytics), Abigail Jackson (White House), Steve Moore (Heritage Foundation), U.S. Department of Labor data.
