{"id":156,"date":"2025-06-18T07:55:14","date_gmt":"2025-06-18T11:55:14","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=156"},"modified":"2025-06-18T07:55:14","modified_gmt":"2025-06-18T11:55:14","slug":"inflation-resurfaces-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/18\/inflation-resurfaces-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Inflation Resurfaces \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><em>Originally written on 2\/18\/2025<\/em><\/p>\n<p><span data-contrast=\"auto\">Last week\u2019s consumer price index report (CPI) was bad news for the economy. <\/span><a href=\"https:\/\/www.bls.gov\/opub\/ted\/2025\/the-consumer-price-index-rose-3-0-percent-from-january-2024-to-january-2025.htm\"><span data-contrast=\"none\">The Labor Department\u2019s all-item 12-month price index rose 3.0%. Not only is this well above the Federal Reserve\u2019s target of 2.0% for annual inflation, it is the 4th consecutive month the inflation rate has risen. After trending down to 2.4% in September 2024 from 3.5% in March 2024, the inflation has increased since Fall 2024.<\/span><\/a><span data-contrast=\"auto\"> Of course, all economic data is flawed, so the CPI statistics may be a fluke. However, the odds of drawing four black balls out of a tub containing half white and half black balls is only about 6%. So, the results are not likely to be too far off.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Other indicators also signal that inflation has not been tamed and may rise. The St. Louis Federal Reserve\u2019s 5-year break-even expected inflation measure, derived from the difference in yield from inflation-indexed and non-indexed bonds, <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/T5YIE\"><span data-contrast=\"none\">fell below 2% in August 2024<\/span><\/a><span data-contrast=\"auto\">. We had all hoped this was a sign inflation had been tamed by the Federal Reserve&#8217;s previous policy of setting short-term rates as high as 5.5%. The Federal Reserve apparently also thought so and cut interest rates in <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/DFEDTARU\"><span data-contrast=\"none\">September by a half-percentage point and then by another quarter percent in both November and December<\/span><\/a><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However, the St. Louis Fed\u2019s inflation expectation measure broke the 2% mark on September 19<\/span><span data-contrast=\"auto\">th<\/span><span data-contrast=\"auto\">, perhaps not coincidentally the day the Fed cut interest rates, and continued to rise to 2.46% on November 6<\/span><span data-contrast=\"auto\">th<\/span><span data-contrast=\"auto\">, the day after the Presidential election. It stayed relatively stable until January 6<\/span><span data-contrast=\"auto\">th<\/span><span data-contrast=\"auto\">, when the Electoral College certified the Presidential results, and then rose to 2.62% in our most recent reading.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Inflation is likely to remain stubborn since there are numerous potential sources for price increases. An aggressive tariff policy increases the prices of both domestic and imported goods because American producers face less competition from foreign competitors, and many imports are inputs for domestic goods. In either case, American producers will increase their prices. In addition, <\/span><a href=\"https:\/\/www.federalreserve.gov\/econres\/notes\/feds-notes\/the-global-transmission-of-inflation-uncertainty-20250116.html#:~:text=Inflation%20uncertainty%20has%20significant%20and,by%20the%20drop%20in%20investment.\"><span data-contrast=\"none\">trade wars, regional conflicts, and unpredictable fiscal and monetary policies lead to inflation uncertainty, typically reducing investment and American industrial production.<\/span><\/a><span data-contrast=\"auto\">\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The only guaranteed way to whip inflation now is for the Fed to raise interest rates immediately and significantly. But that would almost certainly trigger a recession. While we seriously doubt the Fed will raise rates anytime soon, they will probably not cut interest rates again in 2025.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Originally written on 2\/18\/2025 Last week\u2019s consumer price index report (CPI) was bad news for the economy. The Labor Department\u2019s all-item 12-month price index rose 3.0%. Not only is this well above the Federal Reserve\u2019s target of 2.0% for annual inflation, it is the 4th consecutive month the inflation rate has risen. After trending down [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[1502,93,1416,1503,4,7,94,571,106,114,536,1417,1062,1271],"class_list":["post-156","post","type-post","status-publish","format-standard","hentry","category-inflation","tag-break-even-inflation","tag-cpi","tag-economic-indicators","tag-economic-uncertainty","tag-federal-reserve","tag-inflation","tag-interest-rates","tag-investment","tag-macroeconomics","tag-monetary-policy","tag-price-stability","tag-recession-risk","tag-tariffs","tag-trade-policy"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Inflation Resurfaces \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/18\/inflation-resurfaces-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inflation Resurfaces \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Originally written on 2\/18\/2025 Last week\u2019s consumer price index report (CPI) was bad news for the economy. 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