Inflation Rises to 2.9% as Trump Tariff Proposals Cloud Economic Outlook/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ U.S. inflation rose to 2.9% in December, marking the highest rate since July, driven by increases in gas, eggs, and used car prices. However, core inflation, which excludes volatile food and energy categories, eased slightly to 3.2%, offering some relief. President-elect Donald Trump’s proposed tariff policies and economic measures could further impact inflation in 2025.
U.S. Inflation in December: Quick Looks
- Headline Inflation: Consumer price index rose 2.9% year-over-year, up from November’s 2.7%.
- Core Inflation: Declined to 3.2% from 3.3%, reflecting modest easing in price pressures.
- Driving Factors: Gas, eggs, and used cars led price increases, while apartment rents and insurance costs slowed.
- Economic Context: Strong job market and resilient consumer spending continue to fuel growth.
- Trump’s Tariff Plans: Proposed tariffs on imports could push inflation higher in the coming months.
Inflation Rises to 2.9% as Trump Tariff Proposals Cloud Economic Outlook
Deep Look:
Inflation Trends in December
The Labor Department reported that overall inflation reached 2.9% in December, continuing an upward trend since September’s 2.4% low. Rising prices for gasoline, eggs, and used cars were key contributors. However, core inflation, which excludes food and energy, eased slightly to 3.2%.
Economists welcomed the decline in core inflation, which had stagnated at 3.3% for three months.
“This modest easing is a positive signal, but we’re not out of the woods yet,” said Diane Swonk, chief economist at KPMG.
Concerns About Inflation Persistence
Despite some positive signs, anxiety remains about inflation staying above the Federal Reserve’s 2% target. Higher borrowing costs, driven by rising Treasury yields, have already made mortgages, car loans, and credit cards more expensive.
- Mortgage Rates: Rose to 6.9% last week, far above pandemic-era lows of under 3%.
- Fed’s Response: Chair Jerome Powell has reiterated that the central bank will maintain elevated interest rates until inflation drops closer to 2%.
Trump’s Economic Proposals
- Proposed Tariffs: Trump has suggested duties of up to 20% on all imports, with some reaching 60% on Chinese goods.
- Economic Impact: Experts, including former Fed Chair Ben Bernanke, estimate these policies could add several tenths of a percentage point to inflation, enough to influence Federal Reserve decisions.
Economic Resilience and Risks
- Job Market Strength: December’s unemployment rate fell to 4.1%, bolstering consumer spending.
- Potential Risks: Strong demand could exceed production capacity, leading to further inflationary pressures.
Jason Furman, a former Obama administration economist, noted at the American Economic Association’s annual meeting that even minor increases in inflation from Trump’s tariffs could sway policy decisions.
Looking Ahead
Economists generally expect inflation to decline slightly in the coming months, aided by moderating rental prices, wages, and car insurance costs. However, the effects of Trump’s trade policies and sustained consumer demand remain significant uncertainties.
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