The inflation narrative in the U.S. economy is far from resolved. Despite assurances from the Federal Reserve and optimistic signals from the White House, recent data shows core consumer prices rising for the 53rd consecutive month in October, with the year-over-year inflation rate re-accelerating to 3.3%. This persistent rise in prices, underpinned by upticks across services, housing, and medical care, signals that inflationary pressures remain embedded in the economy—and likely pose a significant policy challenge for the next administration.
Under the Hood: Key Drivers of Inflation
October’s data shows the inflation story goes well beyond headline numbers:
- Core Inflation Steady Climb: Core consumer prices (excluding food and energy) climbed by 0.3% month-over-month in October, consistent with previous months. This marks a steady trend in inflationary pressure that underscores how deeply embedded inflation has become.
- Shelter Costs Continue Upward: Housing costs are accelerating, with the shelter index up 0.4% for the month and 4.9% year-over-year. This segment alone represents over 65% of the 12-month increase in core inflation, hinting that elevated housing costs are not just a temporary spike but a prolonged cost concern for American households.
- Broad Service Sector Inflation: Services inflation remains sticky, particularly in categories like medical care, recreation, personal care, and education. Medical care, in particular, has seen a consistent rise, with October showing a 0.3% increase over the month and 3.3% year-over-year, a rate well above the Fed’s target.
- Volatile Goods Prices: While goods prices have been deflationary on a year-over-year basis, the October data shows this trend reversing. Used car prices, a key component in past inflation spikes, rose sharply by 2.7% in October, while airline fares surged by 3.2%. This “goods deflation” is losing steam, and prices across the board may continue rising as supply chain pressures ease.
Supercore CPI: A Troubling Trend
Even after adjusting for housing, the services component, known as “SuperCore” (services excluding shelter), is showing persistently high inflation, complicating the Fed’s goal of a soft landing. SuperCore services inflation is often used as a proxy for wage-driven inflation, and its current trajectory hints at labor market tightness and wage pressures that keep services costs elevated.
The Role of Energy and Goods in Masking Inflation
In recent months, deflation in the energy sector has been a key contributor in keeping inflation figures from climbing further, providing some “temporary relief” in headline CPI. Energy price declines have been attributed to everything from U.S. energy policies to global production adjustments, but the effect is finite. As demand shifts and as energy prices normalize, this temporary relief could dissipate, removing a critical buffer against inflation.
A Political and Economic Dilemma Ahead
As headline consumer prices climb—up by 20.4% since the Biden-Harris administration began—the inflation challenge is increasingly political. Comparatively, inflation under the Trump administration’s first term ran at a far slower pace. With the Fed balancing its inflation target and the political climate increasingly scrutinizing economic policy, inflation’s resurgence presents an unavoidable dilemma.
Notably, if inflation remains stubborn through 2025, it could become an unfortunate hallmark of Powell’s legacy, creating a ripe situation where the next administration may inherit the blame. Should the Trump administration resume leadership, inflation could resurge, setting the stage for complex policy debates and potentially painting Trump as a convenient scapegoat. The timing of inflation’s persistence could play directly into political narratives, depending on how effectively the next administration addresses these issues.
Could 2025 Mirror the 1970s Stagflation?
With global money supply surging once again, many fear a replay of the 1970s stagflation—a combination of stagnating growth and high inflation. Unlike in the 1970s, however, policymakers today face added pressures from global interconnectedness and rapid information flows, making their policy responses and communications subject to far more scrutiny and market reaction.
The Path Forward is Anything But Clear
With inflationary pressures showing no clear signs of abating, policymakers face significant challenges. The Fed’s rate hikes have tempered inflation but haven’t extinguished it, and if current trends persist, inflation may remain a formidable force through the coming years. Whether or not President-elect Trump’s administration inherits a resurgent inflation rate, the reality is that inflation is here to stay, and it will require far more than political posturing to bring it under control.
In this fraught environment, every move by the Fed and every fiscal policy decision will be in the spotlight, and the timing may well determine who history remembers as responsible for taming—or exacerbating—inflation in this era.
