US Inflation Level is Climbing – Is it Good or Bad?

Consumers’ prices in the United States are rising, marking a first climb after a series of declines. The rising housing, transportation, and energy prices are the biggest contributors to this growth.

Rising by 0.20%, the US inflation level is still away from the Fed goal percentage. The intricacies of macroeconomics, US elections, and seasonal changes are believed to have caused this unexpected uptick. How will the Federal Reserve respond? Let’s review.

Why is Inflation Going Up in The US?

The first inflation report after the recent presidential election is out, and the numbers are not what Americans expected. The October price index jumped by 0.2% compared to September figures, from 2.4% to 2.6%.

This marks the first climb after several attempts to bring the US inflation rates down after peaking at 9.1% in June 2022. The Fed has been running a high interest rate policy that trended above 5% for around a year and a half.

Housing costs, automobile insurance, airfare, and energy costs have contributed to this spike.

• Shelter costs, including rent and home ownership, rose by 0.4%.
• Auto insurance prices increase by 14% in YTY rates in November.
• Food prices increased by 0.2% between September and October.
• Electricity costs increased by 1.2%.
• Airline fares increased by 3.2%.

What Causes Inflation in The US?

Many factors affect the inflation in the US, including demand-pull and cost-push. The demand-pull happens when the need for goods and services exceeds supply, while the cost-push happens when production costs rise.

The Fed rate cut and inflation levels are also interconnected. The interest rates are used to curb or boost the price index. After leading a high-rate policy, the Federal Reserve introduced the first 50 base points decrease in September 2024 from 5.5% to 5%.

The borrowing rate was further reduced by another 25 base points in November 2024, from 5% to 4.75%. This drop could have affected the inflation hike, as consumers and businesses became more willing to take loans and expand their credit expenditure.

Potential Influence of Trump’s Policies

Economic experts and analysts are speculating on the outcomes of the US elections that saw Donald Trump getting a second term presidency.

Trump’s economic agenda includes boosting power production with new drilling rigs and extraction sites, which can ease energy prices. However, the possible trading tariffs, China embargo, and corporate tax cuts could affect the inflation rate either way.

Conclusion

After a series of price index improvements and declines, the US inflation level jumps from 2.4% to 2.6%, marking the first increase in seven months. The rising housing costs, auto insurance prices, and airfares are among the top contributors to this increase.

However, many believe it is a temporary climb before continuing with the Fed plan and reaching the predetermined 2% inflation goal. The interest rate drops have significantly dropped prices, and later cuts can improve these figures further.