In the US, inflation is accelerating, increasing instability in the economic environment

^{Photo: Reuters / Sarah Silbiger / File Photo}
In January 2025, the core consumer price index — inflation excluding energy and food prices — rose by an annualized 5.5 percent. This raises the risk that inflation will persist in the economy for a long time, writes The Economist.

Another worrying aspect is that Americans expect inflation to continue for a long time. According to a survey conducted by the University of Michigan, consumer inflation expectations reached 4.3 percent in February 2025, which is the highest increase since 1979.

How are Trump's tariffs affecting inflation?

One of the main factors driving inflation is Donald Trump's trade policies. His administration is pursuing a policy of increasing import tariffs, which could lead to further price increases.

A study by the University of Michigan shows that consumers have mixed opinions about inflation, and this uncertainty has reached its highest level since 1980. Trump's statement that "tariffs could increase prices in the short term" has further increased public concerns.

Can inflation expectations be self-fulfilling?

If consumers expect prices to rise, they demand higher wages, and employers raise the prices of goods and services to cover their costs. This leads to increased inflation.

In January 2025, wages in the United States rose by an annualized 5.9 percent, the highest rate in recent years. The proportion of respondents who believe it is better to buy expensive products now has also reached 20 percent, the highest rate in the past 30 years.

What steps can the Federal Reserve take?

The Federal Reserve can keep long-term interest rates high to curb inflation, which will slow economic growth. If inflation expectations do not decline, the Fed is likely to continue raising interest rates.

Inflation remains one of the biggest problems for the US economy for now, and it is expected to affect wages, consumer spending, and monetary policy in the coming months.

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