Inflation heats up, adding pressure on Trump over vow to lower prices

Price growth sped up unexpectedly in January, posing an early challenge to President Donald Trump's economic agenda.

Inflation for so-called core items, which exclude volatile food and energy prices, climbed 3.3% over the past 12 months, the Bureau of Labor Statistics reported Wednesday, above economists' expectations of 3.2%. On a monthly basis, the inflation measure rose 0.4%, exceeding forecasts for 0.3%.

Trump regained the White House vowing to lower prices "immediately," promising voters on the campaign trail that he'd begin doing so "starting on Day One." But the president, who is 24 days into his new term, cast blame on his predecessor Wednesday morning, writing on his Truth Social platform, “BIDEN INFLATION UP!”

While BLS report's survey period does not cover Trump's first weeks in office, the fresh data shows the challenge of slowing price growth could be more difficult than Trump and many economists had hoped.

Egg prices soared more than 15%, the biggest jump since 2015, largely fueled by an outbreak of bird flu. Housing costs, vehicle insurance, airfares and education prices also rose even as prices fell for appliances, furniture and many types of apparel — possibly reflecting holiday-season discounts.

Across the consumer economy, there are signs that many households are pulling back. McDonald's on Monday reported its biggest sales drop since the pandemic, with a slight uptick in traffic but diners spending less. With airline ticket prices climbing, low- and middle-income consumers are adjusting their travel plans for the year. Even booze sales are slipping.

Markets tumbled Wednesday morning following the inflation report, with the Dow falling some 400 points as the trading day began. Borrowing costs represented by the 10-year U.S. Treasury bond climbed.

In recent months, the Federal Reserve has been holding interest rates elevated to keep inflation at bay. But just before the report's release, Trump wrote on Truth Social: "Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!!"

While lowering interest rates would give consumers and businesses more room to spend and invest, it could risk reigniting inflation.

Yet at least one Trump economic adviser has signaled the administration may look to curb overall consumption, which would most likely entail a slowdown in growth and even increase unemployment. Kevin Hassett, director of the National Economic Council, told CNBC on Monday that reducing demand and increasing the labor supply could address the pace of price growth.

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Markets have so far ignored those remarks. Instead, many investors have zeroed in on the uncertainty created by Trump's trade policies. On Monday, he announced 25% tariffs on all steel and aluminum imports, a move some businesses have warned would trigger price hikes. Last month, Trump announced an additional 10% levy on all goods from China, which promptly rolled out retaliatory tariffs.

“We continue to believe that the Trump Administration’s trade, fiscal and immigration policy agenda would be mildly inflationary,” Bank of America analysts said in a new note to clients. 

Federal Reserve Chair Jerome Powell said on Capitol Hill Tuesday that the economy was “strong overall,” with the central bank having made “significant progress” wrestling inflation toward its 2% goal over the past two years. He told the Senate that the Fed is well positioned to adjust interest rates depending on how economic growth evolves but indicated that it's prepared to keep them higher for longer.

“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly,” Powell said.

Neil Dutta, head of economic research at the Renaissance Macro consultancy, said in a recent note that uncertainty over White House policies is overrated compared with other looming constraints on growth. Consumers have drawn down their savings just as public-sector spending is set to fall, not only because of federal policies but also as states face budget constraints.

“Uncertainty is rising while the economy is slowing,” Dutta wrote.