US Inflation Heats Up Again, and Threatened Tariffs Could Make It Worse

Despite several rate cuts and other measures enacted by the Federal Reserve in order to tame inflation, which had run rampant during the COVID-19 pandemic, inflationary pressure remains a significant concern.

According to Barron’s, the personal consumption expenditures (PCE) price index rose 0.3% in December, following a 0.1% increase in November and a 0.2% boost in October — signaling that inflation may be ticking upward, despite the Fed’s best efforts. Further, prices increased 2.6% in December on a year-over-year basis.

The primary offenders contributing to the uptick: surging energy prices and food.

Despite Persistent Inflation, US Consumers Still Spending

As CNN pointed out, however, increased inflationary pressures weren’t enough to keep American wallets closed.

Another function of the PCE index — which is part of the Commerce Department’s monthly Personal Income and Outlays report — is to track U.S. consumer spending. According to the most recent data, consumers enjoyed themselves by spending heavily in December. Spending increased by 0.7% in December, beating analyst expectations of 0.5%.

Gregory Daco, chief economist at EY-Parthenon, told CNN that the increase in spend versus expectations may have come due to a compressed holiday shopping season following a late-November Thanksgiving holiday, as well as two major hurricane events in October causing necessary replacement goods in later months.

Samuel Tombs, Pantheon Macroeconomics’ chief U.S. economist, suggested that the uptick in spending may have reflected an increase in the purchase of durable goods as American consumers braced themselves for the imposition of President Donald Trump’s promised tariffs on foreign goods.

Trump Tariffs Could Spur Further Inflation, Experts Say

The planned Trump administration tariffs, notably a 25% tariff on major trading partners Canada and Mexico, could inflame inflationary concerns, some experts said.

“Beyond that, however, the growing risk that Trump will impose tariffs a little earlier than we are assuming presents an upside risk to inflation,” Paul Ashworth, chief North America economist at Capital Economics, wrote on the matter, per AP News.

“Consumers shop with an eye on bargains, and 25% tariffs of the imports of America’s two largest trading partners could force prices of store-bought goods well beyond the reach of many if not all consumers,” economist Chris Rupkey of FwdBonds wrote, as cited by CNN. “There may not be another full-blown cost of living crisis, but the future with tariffs certainly looks less affordable for all Americans.”

“We are not sure the country is willing to pay the price for the new administration’s social goals of stopping migrants and illicit drugs at the border,” he added.

For his part, President Trump has laid the blame for persistent inflation at the feet of various issues seen as counterproductive by his administration.

As The Financial Post reported, Trump indicated inflation would have been lessened “if the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change” in remarks made on Jan. 29.