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In January 2025, the core consumer price index — inflation excluding energy and food prices — rose by 5.5 percent year-on-year. This is increasing the risk of inflation persisting in the economy over the long term, according to The Economist.
Another worrying aspect is that Americans expect inflation to last for a long time. According to a survey conducted by the University of Michigan, consumer inflation expectations reached 4.3 percent in February 2025, marking the highest increase since 1979.
How is Trump's tariff policy affecting inflation?
One of the main factors contributing to the rise in inflation is Donald Trump's trade policy. His administration is pursuing a policy of increasing import tariffs, which could lead to further price increases.
Research from the University of Michigan shows that there are varying opinions among consumers regarding inflation, and this uncertainty has reached its highest level since 1980. Trump's statement that "tariffs can raise prices in the short term" has further heightened public concerns.
Can inflation expectations become self-fulfilling?
If consumers expect prices to rise, they will demand higher wages, and employers will raise the prices of goods and services to cover their costs. This leads to an increase in inflation.
In January 2025, wages in the US rose by 5.9 percent year-on-year, marking the highest increase in recent years. Additionally, respondents who believe it is better to buy expensive products now reached 20 percent — the highest figure in the last 30 years.
What measures can the Federal Reserve take?
The Federal Reserve may keep long-term interest rates high to rein in inflation, which could slow economic growth. If inflation expectations do not decrease, the Fed is likely to continue raising interest rates.
For now, inflation remains one of the biggest challenges for the US economy, and it is expected to impact wages, consumer spending, and financial policy in the coming months.
