Consumer inflation increased in December by 0.3 percent, or at a 2.7 percent annual rate, according to the latest data compiled by the U.S. Bureau of Labor Statistics.
The numbers were a mixed bag, with food increasing at 0.7 percent, shelter up 0.4 percent and piped gas service jumping 4.4 percent, while gasoline was down 0.5 percent, fuel oil was down 1.5 percent and electricity decreased 0.1 percent.
From President Donald Trump’s perspective, perhaps it highlights certain problem areas that need to be focused on, especially agriculture, as food budgets are among the areas most acutely felt by U.S. households.
Long term, average weekly earnings are growing on an annual basis of 3.75 percent, still outpacing the current inflation rate of 2.7 percent. That’s certainly what you want to see, but is it fast enough? Last December it was 2.9 percent.
As it is, prices and incomes at current rates will not get back to 2020 levels until about 2028. So, sitting around waiting for wages to catch up might become frustrating for the administration and the American people in the shorter run.
It should be noted that the 0.3 percent uptick in inflation came the same month as a decrease in unemployment. After rising for 34 months, unemployment took a dip in December, with the unemployment rate dropping from a revised 4.5 percent down to 4.4 percent, and the unemployment level from 7.78 million down to 7.5 million, falling 278,000.
On the jobs side of the equations, that’s great news for the economy, and could mean — although only time will tell — that peak unemployment might have been reached in November.
For the current cycle, the unemployment level is currently up 1.75 million since January 2023, 1.3 million of which happened before President Trump was sworn into office.
Looking at real-time data, continued jobless claims increased the week of December 27 by 56,000 on a seasonally adjusted basis and 323,000 on an unadjusted basis, but that’s rather normal right after Christmas.
There could still be a little bit of time left on the cycle, and depending how the population adjustment is ascertained this month, next month’s jobs report could also show further uptick.
The longest period for increasing unemployment in modern history was 39 months, from March 1989 to June 1992 when it rose 3.8 million to 10 million, so the current trend is bound to end likely sooner rather than later, if it did not just end altogether.
That’s the good news, which is, whatever weakness economically arose out of the great inflation of the Biden era should almost be over.
Going forward, if unemployment continues falling, more Americans will be finding jobs, moving into new rentals, buying homes and spending more money, and demand will increase.
That’s usually when inflation begins to heat up again. How that manifests itself will depend greatly on the supply side of the equation. Are we growing more food? Breeding more cows?
Overall, are markets being flooded with goods in the supplies necessary to keep inflation cool or to even help prices to fall? And will incomes and wages continue to stay ahead of inflation, as they have since mid-2023?
If so, then the worst might be behind us, but it could still be a little while before the American people feel it.
Politically, with the 2026 Congressional midterms looming, a challenge will eventually emerge to keep inflation cool while Americans rejoin the labor force and demand increases. It might not be fast enough to help President Trump and Republicans to keep the House majority. As usual, stay tuned.
Robert Romano is the Executive Director of Americans for Limited Government Foundation.
