Meanwhile, inflation in the United States has exploded in three of the past four months. This spike has caused alarm among consumers and economists alike. At an annualized rate consumer prices were still up 2.9% from a year ago as of August. This increase was well above the Federal Reserve’s 2% target. Inflation recently has crept up a little from the same period last year. This increase is an indication of continued economic stress, counter to the previous narrative of a return to equilibrium.
The index for durable produced goods as a whole was up about 2% from a year ago as of August. Meanwhile, the price of groceries spiked 2.7%. As we discussed last week, coffee prices are up almost 21% in the last year. This spike came in part due to climate change-induced droughts that have decimated coffee bean harvests. Prices are increasing, and these increases in transportation fares, fees, and costs indicate a bigger picture. The cost of everyday goods has been skyrocketing, even more so than prior to COVID-19.
Former President Donald Trump recently asserted that inflation had been “defeated,” claiming that “grocery prices are down, mortgage rates are down.” However, these statements are at odds with the experience of most consumers, who are still struggling with aggravatingly high prices.
We were struck by just how much businesses are looking over their shoulders at the inflationary trend. They’re facing increasing pressure to pass rising costs onto customers. Chris Butler, CEO of National Tree Company, recently dropped a big surprise. This holiday season, his business will raise costs by about 10% on trees, wreaths, and garlands to make up for the tariffs. He stated, “At the end of the day, we can’t absorb the entirety of it and our factories can’t absorb the entirety of it. So we’ve had to pass along some of the increases to consumers.”
Trump and his administration love the 50% import tax on Brazil, a major coffee producer — which has been driving up coffee prices even higher. Economists predicted that these tariffs would push inflation through the roof, but this hasn’t happened.
Jerome Powell, Chair of the Federal Reserve, acknowledged that “inflation, though still somewhat elevated, has come down a great deal from its post-pandemic highs,” but noted that upside risks to inflation remain. Jeffrey Schmid emphasized the importance of maintaining credibility regarding inflation management, stating, “The Fed must maintain its credibility on inflation.”
Even with this reassurance from government officials, some experts are already warning that confidence from consumers and businesses has started to falter. Karen Dynan, a senior fellow at the Peterson Institute for International Economics, cautioned that if inflation persists at elevated levels, it might undermine confidence in future economic stability. She commented on potential consequences of rate cuts by saying, “If that proves to be the case, in hindsight it will be that the Fed cuts — and I do expect several more — are going to be seen as a mistake.”
The costs of basic necessities are skyrocketing. At the same time, Trump continues to threaten a “massive increase of tariffs” on imports from China, further clouding the inflation outlook with uncertainty. We can hardly overstate the impact of these decisions, which would echo through the entire economy as businesses adapt to new, higher costs and updated pricing models.
As inflation remains significantly lower than its peak of 9.1% three years ago, many are left questioning whether current measures are sufficient to control ongoing price increases. Jason Furman remarked on the precariousness of relying on transitory solutions in light of recent economic trends: “It is a big gamble after what we’ve been going through … to count on it being transitory.”
American citizens are frustrated and struggling with inflation and soaring prices on vital goods and services. At the same time, government policy and market dynamics are continuing to profoundly redefine the economic landscape. The next few months could be a pivotal point for our economy. They will decide if inflationary pressures have leveled off or if they’re here to stay, affecting consumer spending habits and business plans.
