Inflation rose again in January, sixth rise in last seven months

On the campaign trail, President Trump talked a lot about getting prices down. If you take this to mean getting inflation back to the Fed’s target of 2% annual growth, as I do, today’s news doesn’t bode well for him.

The Bureau of Labor Statistics announced that:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent on a seasonally adjusted basis in January, after rising 0.4 percent in December…Over the last 12 months, the all items index increased 3.0 percent before seasonal adjustment.

Figure 1 shows the monthly change in the CPI since January 2017, when President Trump was inaugurated the first time. From January 2017 to January 2020, the average monthly increase was 0.2%. COVID-19 drove this to a low in April 2020, but it rebounded to average 0.3% from June 2020 to January 2021. From then, the monthly rate began to climb, and from February 2021 to June 2022 — the first seventeen months of Joe Biden’s presidency — the average monthly rate was 0.7%, more than double the average during President Trump’s term. From then, however, inflation fell quite rapidly, and from July 2022 to June 2024, the average monthly increase was just 0.2%. Since then, however, the monthly rate of inflation has risen in six of seven months, hitting 0.5% in January 2025.

Figure 1:

Figure 2 shows the rate of CPI increase over twelve months. This is driven by the monthly changes, obviously, so I won’t narrate this too much, but it is a number you will commonly hear. Because of those increasing monthly numbers since last summer, the average annual rate has risen from 2.4% in September 2024 to 3.0% in January 2025.

Figure 2:

What has driven this?

Last March I wrote, “The money supply stopped shrinking and inflation stopped falling.” I have argued that the bout of inflation seen in 2021 and 2022 was driven by a massive expansion of the monetary base to keep the cost of federal government borrowing low during the vast spending on the COVID-19 pandemic — which happened on President Trump’s watch, of course.

That seems to be the case today. Figure 3 shows the growth over twelve months of the M2 measure of the money supply, which is most closely tied to changes in the price level. We see it exploding from February 2020 to February 2021 and collapsing thereafter. Since April 2023, however, it has been drifting up again.

Figure 3:

The economist Milton Friedman wrote that monetary policy operated with “long and variable lags.” Monetary policy actions taken during the first Trump term showed up as inflation during the Biden presidency. Whatever changes we see in M2 now will be seen in the CPI at some time in the future. President Trump’s fiscal inheritance — $2 trillion deficits as far as the eye can see — is an unenviable one and his monetary one is little better. His struggle to bring prices down might be a tougher fight than he thinks.