Trump Presidency and Inflation: What to Expect in 2025

Inflation. It’s a word we’ve all been hearing a lot lately. It basically means that things are getting more expensive. This month, the U.S. saw some interesting changes in inflation.

Year-over-year change in the Consumer Price Index

Inflation Numbers: A Quick Look

Overall prices in the U.S. went up by 2.9% compared to the year before. This is called the Consumer Price Index (CPI), and it’s how we measure inflation.

There are two main ways to look at inflation:

Headline CPI: This looks at all prices, including food and energy (like gas).
Core CPI: This looks at prices without food and energy. Why? Because food and energy prices can change a lot from month to month (they’re “volatile”), which can make it hard to see the real trend.

Inflation:

Headline CPI was 2.9% (year-over-year). This means overall prices were 2.9% higher than in December of the previous year.
Core CPI was 3.2% (year-over-year). This was a little lower than what experts expected. This is good news, as it signals underlying inflation pressures may be easing.

So, what does this all mean? While overall prices did rise, the fact that core inflation came in lower than expected is a positive sign. It suggests that the fight against inflation might be making some headway.

Where Are Prices Going Up? (And How It Affects You)

While the overall inflation number gives us a general idea, some things are getting more expensive much faster than others. Here are some key areas where prices are rising quickly:

Car Insurance: Up 11.3%! This means it’s costing people a lot more to insure their cars.
Transportation: Up 7.3%. This includes things like gas, buses, and trains.
Car Repairs: Up 6.2%. If your car breaks down, it’s going to cost you more to fix it.
Utility Gas: Up 4.9%. Heating your home is getting more expensive.
Homeowner Costs: Up 4.8%. This includes things like property taxes and home maintenance.
Rent: Up 4.3%. Finding an affordable place to live is becoming more challenging.
Food Away From Home: Up 3.6%. Eating at restaurants is costing more.
Hospital Services: Up 3.5%. Healthcare costs continue to rise.

These increases hit people hard because they are for necessities. Everyone needs transportation, a place to live, and food. When these things get more expensive, it puts a strain on everyone’s budgets.

What is Inflation? (And Why Should You Care?)

Imagine your favorite candy bar cost $1 last year. If inflation is happening, that same candy bar might cost $1.10 this year. That extra 10 cents is inflation in action. It means your money doesn’t buy as much as it used to.

This is why understanding inflation is important—it affects how much you can buy with your money.

The Bigger Picture: Inflation and the Economy

Inflation doesn’t just affect how much your groceries cost. It also has a big impact on the whole economy. Here’s how:

Interest Rates: When inflation is high, the Federal Reserve (the “Fed”), which is like the central bank of the U.S., often raises interest rates. Higher interest rates make it more expensive to borrow money. This can slow down the economy because people and businesses are less likely to take out loans to buy houses or invest in new projects.
Spending and Saving: When prices are rising quickly, people may be less likely to spend money because they don’t know how much things will cost in the future. This can also slow down the economy.
Investment: Inflation can also affect investments. For example, if inflation is higher than the return you’re getting on your savings account, you’re actually losing money!

The Fed’s Goal: The Fed wants to keep inflation around 2%. This is considered a healthy level for the economy. When inflation is too high (like it has been recently), the Fed tries to bring it down by raising interest rates.

What Does This Mean for the Future? (And What Can You Do?)

It’s hard to predict the future with certainty, but here are some things to consider:

Inflation is still above the Fed’s target. This means the Fed might keep interest rates higher for a while.
Some prices are still rising quickly. This means you might continue to feel the pinch in certain areas of your budget.
The economy is still strong. This is good news, as a strong economy can help to offset the effects of inflation.

Here are some actionable tips you can use right now:

Consider investing your money: This can help you to keep up with inflation.
Don’t panic: Inflation is a normal part of the economic cycle.

The Role of Future Policies

It’s important to acknowledge that events outside of typical economic cycles can also significantly impact inflation. For example, global events, supply chain disruptions, and even political decisions can all play a role. The recent conflict in Eastern Europe, for instance, has had a ripple effect on energy prices worldwide.

Looking ahead, potential policy changes could also influence inflation. For example, proposed tariffs (taxes on imported goods) could lead to higher prices for consumers.

Inflation and Your Investments

Inflation can impact your investments. Here’s how:

Eroding Purchasing Power: If your investments don’t grow at a rate that’s higher than the inflation rate, your money is effectively losing value. This is because it won’t be able to buy as much in the future.
Impact on Different Asset Classes: Different types of investments react differently to inflation. For example, stocks (ownership in companies) can sometimes perform well during periods of moderate inflation, as companies can often pass on increased costs to consumers. However, high inflation can negatively impact stock valuations. Bonds (loans to governments or corporations) can be particularly vulnerable to inflation, as their fixed interest payments lose purchasing power over time.
Real vs. Nominal Returns: It’s important to distinguish between “nominal” and “real” returns. Nominal return is the actual percentage return on your investment. Real return is the return after accounting for inflation. For example, if your investment earns a nominal return of 5% and inflation is 3%, your real return is only 2%.

Strategies to Consider:

Real Estate: Real estate can be a good hedge against inflation, as property values and rents often rise along with prices.

Key Takeaways on Inflation

Inflation means things are getting more expensive.
The CPI measures inflation.
December’s inflation numbers showed a mixed picture. Overall inflation ticked up, but core inflation was a bit lower than expected.
Some necessities are getting much more expensive.
Inflation affects the entire economy.
It’s important to budget carefully, shop around for deals, and consider investing.
External factors and future policies can also impact inflation.
Inflation can significantly impact your investments.

Frequently Asked Questions About the Inflation Report

What is the current inflation rate?

As of December 2024, the inflation rate in the United States is 2.9%. This means that, on average, prices have increased by 2.9% compared to the same time last year.

How does this inflation rate compare to previous months?

The 2.9% inflation rate in December 2024 is higher than the 2.7% rate in November. It’s also the highest rate we’ve seen in the last five months.

What items are getting more expensive?

Some items are seeing bigger price increases than others:

Car insurance: Up 11.3%
Transportation: Up 7.3%
Car repairs: Up 6.2%
Home gas: Up 4.9%
Homeownership costs: Up 4.8%
Rent: Up 4.3%
Eating out: Up 3.6%
Hospital services: Up 3.5%1

Why are egg prices so high?

Egg prices have jumped 37% in the past year. This is mainly due to an outbreak of bird flu, which has affected many egg-laying chickens.

Is there any good news about inflation?

Yes! Some things are getting better:

Gas prices at the pump went down a bit in December.
The cost of housing, while still going up, is doing so more slowly than before.
Core inflation, which doesn’t include food and energy prices, is lower than expected.

How does inflation affect my daily life?

Inflation impacts you in several ways:

Your money doesn’t go as far when shopping.
It’s harder to save money.
Borrowing money (like for a car or house) might stay expensive.

What’s causing this inflation?

Several factors contribute to inflation:

Increased demand for goods and services
Supply chain issues
Labor shortages in some industries
Government policies and spending.

How might the new president affect inflation?

President-elect Donald Trump’s policies could impact inflation:

Tariffs on imported goods could increase prices.
Tax cuts might lead to more spending and higher prices.
Changes to immigration could affect the labor market and wages.

What can I do to protect myself from inflation?

Here are some steps you can take:

Track your spending carefully.
Look for deals when shopping, especially for items that have gone up a lot.
Consider asking for a raise or looking for a better-paying job.
Invest wisely to try to keep up with or beat inflation.

Will inflation go down in 2025?

Many experts think inflation might slow down in 2025, but it’s not certain. A lot depends on government policies and economic conditions.

How does this inflation compare to the Fed’s target?

The Federal Reserve aims for a 2% inflation rate in the long term. At 2.9%, we’re still above this target, but we’re much closer than we were in 2022 when inflation peaked at over 9%.

What’s the difference between headline and core inflation?

Headline inflation (2.9%) includes all items. Core inflation (3.2%) excludes food and energy prices because they can be very volatile. Core inflation gives a better idea of long-term trends.

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