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Inflation has been an economic scourge for many Americans under President Biden — and it could remain a continued problem under Donald Trump.

Consumer prices rose 2.9 percent in December compared to a year ago, according to 

 out on Wednesday. That's substantially lower than the four-decade high of 9.1 percent that the U.S. hit in mid-2022. But here's the worrying bit: It marks the third consecutive month in which annual inflation has slowly ticked higher — not lower.

It's a sign of both how much progress the Federal Reserve has made in beating down inflation, but also of how much policymakers are struggling to wrestle it down to the Fed's preferred target of 2 percent. 

And now, economists worry inflation could get worse under Trump. Here are three things to know about inflation.

Inflation is hitting where it hurts most 

Americans have been fed up with inflation for a while — and for good reason. Some of the prices that have risen the highest are on goods that are key to most households.

In December, gas and food prices were among the biggest contributors to inflation. Egg prices, which have been driven higher by the avian flu, were up by nearly 37 percent from a year ago.

Car insurance costs were up 11 percent from last year. Meanwhile, gas prices are also on the rise, up 4.4 percent in December over November.

Sarah House, a senior economist at Wells Fargo Corporate and Investment Banking, called the price increases "an ongoing challenge for a lot of households." And she points out that although wages have generally been rising, this trend is not substantially easing the financial burdens on households.

"If you look at where wage growth has been over the past year, it's still outpacing the overall increase in inflation, but not by a lot, especially when again we look at some of the more frequently purchased items of a lot of households," she says.

But there's some not-so-negative news. Rent prices, for example, are stabilizing — though that just means they are not rising as fast as they were before. Shelter prices, which covers rent, were up 4.6 percent from a year ago, a smaller increase than in recent months.

And prices excluding those for food and energy, which are the most volatile, rose 3.2 percent in December compared to a year earlier.  That's the smallest gain in months for this measure, which is called "core inflation." 

Investors saw the slowdown in the core consumer price index very positively: On Wednesday, stocks surged, with all three main indexes, including the Dow Jones Industrial Average, posting their best day since Nov. 6, the day after Trump got elected.

The Fed is still trying to get inflation down

Inflation, though, is still above where the Federal Reserve would like it to be. And that will likely mean the Fed will need to keep interest rates higher for longer, despite making significant progress in bringing inflation down from its 2022 peak. 

After cutting interest rates by a full percentage point last year, the Fed projected last month that it would only make two quarter-point cuts in 2025 — and some economists see 

Still, the Fed feels it has room to maneuver. Data last week showed the labor market is still growing strongly, with 256,000 jobs added last month. 

That means the Fed does not need to rush to cut interest rates. Instead, it can keep rates higher and hope a healthier economy and rising wages help offset the pain from inflation.

There's another major reason some Fed policymakers are hesitant to cut rates: Donald Trump.

Anger over inflation was a big reason why many Americans voted for Trump last year — but some of Trump's economic policies could make inflation worse.

One main worry is his threat to impose tariffs on imports from other nations, which economists warn would end up being paid directly by American consumers.

Among the nations Trump has named are three of the country's top trading partners: Mexico, Canada and China. Tariffs on those three alone could raise prices for 

Omair Sharif, founder and president of Inflation Insights, says the tariffs Trump imposed in his first term were more targeted and not on "things you go out and buy at Home Depot on the weekends."

This time however, Trump is threatening widespread tariffs. If he follows through, the impact would be felt by many households, Sharif said: "More likely than not, you will be paying higher prices." 

Meanwhile, Trump is also threatening mass deportations of immigrants, although there is uncertainty about who he will target and how he can do so. That could also drive up prices by 

For now, it's hard to say what Trump will actually do during his term. The country will start getting clues about that soon enough, however, after his inauguration on Monday.

Rafael Nam

Author

Consumer prices rose 2.9 percent in December from a year earlier, marking the third consecutive monthly uptick in annual inflation.

Inflation remains stubbornly high for many Americans. Could it get worse under Trump?

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