Inflation rose 0.5 percent in January, foreshadowing Trump’s tariffs: CEI analysis

January’s inflation numbers across all sectors rose 0.5 percent, up from 0.4 percent in December. CEI senior economist Ryan Young explains why January’s CPI report may indicate trouble ahead of President Trump’s new tariffs.

“January’s CPI report doesn’t bode well, in part because it doesn’t reflect new tariffs that will likely appear in February’s numbers.

“There is some good news. The steep rise in grocery prices is due mainly to a bird flu-driven egg shortage that has raised egg prices. This price increase is from supply and demand, not underlying inflation, so it shouldn’t concern the Fed or inflation hawks. Egg prices will go back down in the coming months as people switch to substitutes while chicken populations recover.

“Growth and unemployment also remain solid. And absent another Covid-scale spending binge, inflation will not go back to 9 percent.

“The bad news is that Trump’s fondness for tariffs, and his tendency to suddenly enact them via social media, is causing uncertainty in supply chains and markets, in addition to their directly causing price increases.

“Tariffs are not strictly inflationary since they do not affect all prices the way monetary inflation does. Steel tariffs make cars and construction more expensive, for example, but they do not increase grocery prices. But tariffs do raise prices of affected goods enough to show up in indicators like CPI, and consumers feel just as much pain from them.

“The Fed’s job is harder than it was a couple months ago. Look for the Fed to keep rates steady at its next meeting. If there are more surprise tariff increases, the Fed may even need to increase interest rates, which it would rather not do.”