As he returns to the White House next week, President-elect Donald Trump will likely inherit the inflation problems that plagued the Biden administration, as evidenced by the slight increase in consumer price increases in December.
The annual inflation rate, which is determined by comparing prices to a year earlier, increased from 2.7% in November to 2.9% on Wednesday, according to a data released by the Bureau of Labor Statistics.
The rate exceeded forecasts and increased to 0.4% on a monthly basis from 0.3% the previous month.
A measure that excludes volatile food and gas goods had a lower-than-expected increase, despite the fact that the overall inflation index increased. Investors are paying particular attention to that so-called “core” reading.
Stock futures surged following the release of the report, with the S&P 500 and Nasdaq expected to gain more than 1.5% and the Dow Jones Industrial Average predicted to open higher by about 700 points.
The shelter category, which recorded the lowest 12-month growth since January 2022, also gave traders hope. For several months, that component—which tracks a number of shifts in rent-price growth—had not shown a discernible decrease.
The unexpected core reading in Wednesday’s data, according to some market observers, portends turbulent times as Trump assumes office.
Seema Shah, chief strategist at Principal Asset Management, wrote in a note that “markets are likely to be whipsawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time.”
The BLS announced on Friday that the nation added 256,000 jobs last month, which was much higher than anticipated and suggests that U.S. economic growth is not just stable but may be accelerating.
Part of the reason Trump was re-elected was to keep up the economic momentum that had been established under the Biden administration. Gross domestic product numbers that consistently exceeded projections and stock prices that have surged to all-time highs provide as evidence.
However, in addition to greater borrowing costs for the US and higher interest rates for consumers, that expansion came at the price of several years of soaring inflation.
Trump’s economic policy program may be overturned if such circumstances continue, which many conventional economists believe might lead to additional price hikes.
In a letter to clients on Monday, BCA Research stated that although markets initially rejoiced at the election results, the celebration was not as joyous as it was in 2016–17. The macroenvironment is less tolerant of tariffs, deportations, and inflation than it was eight years ago, and the incoming administration may have a more difficult time than it did during its first term.
Investors in stocks and bonds have been punished by the markets in response to the potential of additional price hikes. The early spike in stock prices following Trump’s election in November has virtually vanished.
In the meantime, the Federal Reserve has signaled that it plans to maintain its key interest rate high in reaction to the potential of additional price hikes, and U.S. borrowing costs, which are already under pressure from the country’s soaring debt issuance, have hit new highs.
These concerns have been heightened by Trump’s tariff threats, with some experts speculating that some consumers may have already driven up costs by delaying purchases in anticipation of the trade penalties.
Shah of Principal Asset Management stated in a separate note prior to its release on Wednesday that “the combination of recent economic strength and the growing threat of tariffs has increased upside inflation risks.”
Not every economic sector is performing well. According to labor surveys’ business and professional services components, white-collar industries have generated virtually no net new employment in the last 18 months. Manufacturing payroll growth has likewise stagnated.
Furthermore, not all economists are voicing serious concerns about Trump’s proposed policies leading to fresh price rises or that the Fed will raise interest rates abruptly as a result of those plans.
In a recent note, Jan Hatzius, chief economist at Goldman Sachs, commented, “We do not expect fiscal or immigration policy changes to boost inflation appreciably, and we find it difficult to envision tariffs that raise inflation enough to make a plausible case for hiking without also unsettle the equity market, as even much smaller tariffs did in 2019.”
However, as expectations for further disinflation or a slower rate of price increases—the outcome that Trump would most want—hang in the balance, general attitude is still wary.
In a note to clients this week, Bank of America analysts stated that disinflation will be much more slow from now on.