Americans who believed President Donald Trump would follow through on his promise to lower costs on Day One will be disappointed by the inflation data announced on February 12, 2025. Additionally, it will put pressure on the incoming administration to avoid policies like tariffs that could increase inflation.
Unexpectedly, the consumer price index—which tracks changes in consumer prices for a broad basket of goods and services—rose by 0.5% between December and January. It indicates that costs for items have increased by about 3% for customers compared to a year earlier.
In January, economists had anticipated a slowdown in the rate of inflation.
For everyone involved, the news is not good. It indicates that inflation is still higher than the Federal Reserve’s long-term goal of 2%, which makes it more difficult for the central bank to lower interest rates at its upcoming meeting on March 19. The Federal Open Market Committee, which sets interest rates, maintained its benchmark federal funds rate at 4.25 to 4.50% during its most recent meeting.
Markets are more confident that the Fed will maintain rates at its March meeting after the release of the most recent inflation statistics.
Customers will also suffer more as a result. Rates on credit cards, auto loans, and mortgages are heavily influenced by the Fed’s higher interest rates. Consumers would face a severe 6.2% yearly inflation rate if January’s pace of inflation persisted throughout 2025.
Additionally, it highlights the current set of Trump economic policies, even though it would be churlish to attribute the most recent spike in inflation to a government that is only a few weeks old. Economists have long cautioned that tax cuts and import tariffs don’t do much to reduce inflation; on the contrary, they may hasten price increases.
China is already subject to a 10% tariff on all goods. Along with proposing a 25% duty on all imports of steel and aluminum, Trump also considered enacting new tariffs on Canada and Mexico, two of the US’s biggest trading partners.
I think the Federal Reserve will be forced to maintain high rates for the rest of 2025 if these broad tariffs are implemented.
Revving up for higher car costs
Rent hikes, which made up about 30% of all item increases in January, were one of the main causes of inflation. Rents increased 4.6% over the previous year.
Americans could anticipate further price hikes in the homebuilding industry if Trump’s tariffs on Canadian goods, such as lumber, go into place. Because supply and demand imbalances continue to be a major factor in price increases, fewer homes will be constructed because of the greater cost of materials, which will probably result in higher rents.
Better news for consumers came from new car prices, which stayed steady during the month and slightly decreased from a year earlier.
This is despite a 2.5% rise in demand for new cars compared to 2024. For the fifth consecutive month, January 2025 saw more new cars sold than the same month the previous year.
However, the auto industry will be impacted by any levies on the import of vehicle parts or materials, just like with homebuilding. It’s possible that automakers were relieved when Trump postponed hefty tariffs on Canada and Mexico. However, industry observers anticipate immediate effects on top sellers if agreements are not achieved by the March 1 deadline.
Additionally, any increase in the price of new automobiles would have a ripple effect on secondhand cars, whose prices increased 2.2% in January—the biggest increase since May 2023.
Increased prices are no yoke! (groan)
Of course, the government has no authority over all inflationary forces.
Over the course of the year, the transportation sector—which includes insurance and parking fees—grew by 8%. Parking fees went up by over 5% due to more costly repairs and riskier driving practices, while insurance rates skyrocketed by nearly 12% on the heels of last year’s 20.6% price hike.
In the meantime, egg prices increased by a startling 15.2% in January and are now 53% more expensive than they were at this time last year due to the ongoing spread of avian flu.
All things considered, supporters who supported Trump primarily because of inflation might be a bit nervous. Even though the administration has only been in office for a few weeks, Americans are facing rising costs for whatever reason, and there doesn’t seem to be any end in sight.
Jason Reed, University of Notre Dame Associate Teaching Professor of Finance
The Conversation has republished this article under a Creative Commons license. Go through the original article.
Eliot Pierce is a dedicated writer for ChiefsFocus.com, covering local crime and finance news. With a keen eye for detail and a passion for storytelling, Eliot aims to provide his readers with clear and insightful analysis, helping them navigate the complexities of their financial lives while staying informed about important local events. His commitment to delivering accurate and engaging content makes him a valuable resource for the community.