By Howard Bingham | January 13, 2026
Inflation remained stubbornly above the Federal Reserve’s long‑term 2% target in 2025, with consumer prices climbing 2.7% over the year — a clear sign that, despite cooling from the peaks seen earlier in the post‑pandemic era, Americans continue to feel the pinch at the grocery store, at the gas pump and in their rent checks.
According to the latest Consumer Price Index (CPI) data released by the Bureau of Labor Statistics, headline inflation held steady at 2.7% year‑over‑year in December — unchanged from November and in line with economists’ consensus expectations.
The so‑called core CPI — which strips out often‑volatile food and energy prices to provide a clearer picture of underlying price pressures — also showed modest increases, ticking up around 2.6% annually. That suggests persistent broad‑based inflationary forces are still at work in the economy.
Tariff Impact Less Than Feared
One of the more closely watched potential drivers of inflation over the past year has been the impact of tariffs on imported goods. Early concerns among economists and market watchers were that sweeping tariff measures would pass directly through to higher consumer prices, especially for goods. But so far, those pressures have been less dramatic than anticipated, with many analysts concluding that businesses — not solely consumers — have absorbed a significant share of tariff‑related costs.
While tariffs have contributed to higher production costs in some sectors, their overall impact on headline inflation appears muted relative to early projections. That could change if tariff regimes widen or intensify, but for now, goods prices have not surged beyond broader inflation trends.
What’s Driving the Numbers
Despite the headline figures that may seem moderate when contrasted with the inflation surges of the early 2020s, many Americans still feel the effects in key parts of their budgets:
- Food prices have climbed noticeably, adding to grocery bills that remain a sticking point for households.
- Shelter and housing costs continue to push inflation higher, reflecting ongoing tightness in rental and home markets.
- Energy prices, while volatile, also contributed to the overall CPI increase, particularly as utility costs and gasoline have shown upticks.
These persistent price pressures have kept inflation above the Fed’s 2% mandate and complicated policymakers’ task of balancing price stability with broader economic growth.
The Fed’s Dilemma
Throughout 2025, the Federal Reserve trimmed interest rates three times in response to slowing growth and signs of cooling inflation — a sign that officials believe some progress is being made toward price stabilization. But with core inflation still above the central bank’s goal and consumer prices proving sticky in essential categories, a cautious pause appears likely in early 2026.
Federal Reserve Chair Jerome Powell and colleagues face growing political pressure from the White House to accelerate rate cuts, even as lawmakers and economists debate the risks of easing policy too soon. Maintaining independence in monetary policy while navigating these political currents will be one of the Fed’s central challenges in the year ahead.
What Comes Next
Economists remain divided on whether inflation will move decisively below 2% in 2026. Some forecasts point to a gradual convergence toward the Fed’s target as tariff effects continue to fade and supply chains normalize, while others warn of renewed pressure if energy or housing costs spike again.
For now, consumers and businesses alike are bracing for a year of elevated prices, even as broader indicators modestly cool.
Howard Bingham is a business journalist covering corporate strategy, financial markets, and economic policy affecting US and global commerce.
