Inflation is not just back in the news but also in the consciousness of the U.S. public.
It’s not panic, but part of a growing recognition that inflation could again rattle the economy — and have implications for interest rates. Early in February, the combination of anemic economic growth, high inflation, and high unemployment, which is called stagflation started to haunt Wall Street. Short-dated Treasury yields lifted by as much as eight basis points over concerns about interest rates. In the meanwhile, longer-term yields fell over worries about inflation.
In his semiannual congressional testimony, Federal Reserve Chair Jerome Powell found higher inflation dogging him in questions. The Consumer Price Index came out. Although not the Personal Consumption Expenses figures the central bank prefers as an inflation indicator, the CPI showed a year-over-year 3% increase or 0.5% between December 2024 and January 2025. December’s increase was 2.9%. Core inflation over 12 months was even higher at 3.3%; December was 3.2%.
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The Fed has telegraphed a falling likelihood of rate cuts. It sounds like the Fed plans a steady path for now — no increases in interest rates to battle inflation and no cuts when there is no need for monetary stimulus.
Another worrying sign is that the public seems to be expecting higher inflation. Advanced data from the University of Michigan’s consumer survey showed a median expectation of 4.3% price growth over 2025. That’s up 170 basis points since the presidential election.
The shift is important; the expectation of higher prices can cause consumer behavior to help create a recession. As CreditCars.com reported, one in five Americans is “doom spending” — “purchasing items excessively or impulsively in response to fears or anxiety about future events.”
About 42% of them are or will begin stockpiling such items as food and toilet paper. And 28% have made large purchases over $500 since the November election, worried that coming inflation could make the items more expensive.
Fear of higher tariffs is the fuel for panic buying, according to the survey. Trump has said that prices could go up in the short term and it seems that he is right. According to an S&P Global estimate, the new tariffs could cause a one-time rise in U.S. consumer prices of between 0.5% and 0.7%, with real GDP over the next 12 months being 0.6% lower than their current forecasts.
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