The wider politics of price rises

12 Feb 2025 2 min read

Daily update

US January consumer price inflation will be largely unaffected by US President Trump鈥檚 trade taxes (though prices are occasionally raised in anticipation of tariffs). Unless tax increases are very aggressive, nothing Trump does will have a bearing on first quarter inflation. However, the composition of consumer prices is politically important.
Food prices merit attention. They are not just egg prices鈥攏either Trump nor Federal Reserve Chair Powell can influence those. Food prices are, however, a very visible form of inflation. If food prices move higher, this may restrain trade taxes on imports from Canada and Mexico (which export food to the US). Taxing Mexican imports directly raises the US price of avocado on toast, which would agitate Gen Z. The composition of inflation may influence which areas of the US incur the burden of trade taxes.
Powell testified to the Senate yesterday, and speaks to the House today. Their remarks stressed no urgency in cutting rates鈥攎arket expectations are being buffeted by volatile trade tax expectations anyway. Powell did take questions on Fed independence鈥攁n important condition for the US dollar鈥檚 reserve role, which depends on rule of law being observed.
Europe offers little distraction鈥攖he Bank of England鈥檚 Greene is speaking, and Italian industrial production data is due.