The price gains that have bedeviled U.S. consumers for the last three years stubbornly refuse to return to Goldilocks territory.
The January Consumer Price Index (CPI) showed that the annual rate of inflation in the U.S. was 3.0%, slightly above the 2.9% December 2024 figure. That means price gains are hotter now than they were last fall, when September inflation stood at the almost normal rate of 2.4%, the lowest since the Covid-19 pandemic disrupted the economy.
“The report confirms that CPI is still above the Fed’s 2% target range. This is important for everyday life as it suggests the Fed will be less likely to lower interest rates in the near future—or at all in 2025,” says Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth.
The U.S. economy is at a crossroads, with consumers exhausted by years of elevated price gains and the Federal Reserve hesitantly managing interest rates in an attempt to deliver the so-called economic “soft landing” while also ensuring that the inflation wildfire doesn’t break out afresh.
“If the Fed lowers rates too far or too soon, they’ll lose their ability to contain inflation, and that’s a chance they are not currently willing to take,” says Pappalardo.
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Food costs continue to moderate, with one big exception
Staple food prices have leveled out over the past year, offering consumers one reason for optimism, although there are notable exceptions.
Eggs are fowling up the equation, thanks to the ongoing avian flu pandemic, with a 6.1% price increase over the last 12 months. Overall grocery prices only increased by 1.9% on average, with some categories such as fruits and vegetables remaining just about the same price that they were a year ago.
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Still, consumers report feeling stretched because overall food costs remain significantly higher than they were before the pandemic—up 26.9% from March 2020 to December 2024. However, note that the biggest leg up in that price explosion occurred between January 2021 and January 2023.
In the subsequent two years, food prices have cooled off materially. The January CPI index clocks food prices at 311 basis points. But that’s only a 9-point increase in two years; a far cry from the initial staggering increase.
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Let’s take a closer look at some specific grocery items to see how they’ve changed in the past five years:
- Milk: Up 23.7% from $3.25 per gallon to $4.02 per gallon (down $0.08 from December 2024)
- Ground beef: Up 34% from $4.10 per lb to $5.49 per lb. (down $0.08 from December 2024)
- Bread: Up 42.5% from $1.35 per lb to $1.92 per lb. (up $0.01 from December 2024)
- Chicken: Up 46.3% from $1.40 per lb to $2.06 per lb. (even with December 2024)
- Eggs: Up 239% from $1.46 per dozen to $4.95 per dozen (up $0.81 from December 2024)
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Household energy costs rise, but gas and fuel are dropping
Energy costs are a mixed bag. Overall, they are only up 1% from January 2024 to January 2025, largely due to a healthy 5.3% drop in fuel oil prices. In contrast, the utilities prices paid by consumers are up as much as 4.9% for natural gas and 2.5% for electricity over the period.
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Many goods are getting cheaper, but vices will cost you
John Canally, Chief Portfolio Strategist at TIAA Wealth Management, notes that on average the prices of goods are down 0.1% from a year ago—but only barely.
“Goods such as TVs, furniture, apparel, etc are down from December 2024 vs. December 2023,” says Canally. “However, it is important to note here that while prices of goods in general are falling, they remain well above (23%) pre-pandemic levels, and are not likely to return to those levels.”
Which segment of goods are not seeing a decreased price? Products such as alcohol and tobacco, which have risen 1.4% and 6.8% respectively. If you want to indulge in these pastimes, expect to pay more than you have in the past.
And there’s one big factor that’s sure to be a huge shock to future CPI reports: the Trump tariffs. “We expect that tariffs may become a bigger part of the inflation story as 2025 unfolds,” says Canally, who warns that it’s too early to estimate any real impact on inflation right now.
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Housing and services are more expensive across the board
If you own a vehicle, your costs got much heavier over the last year. Auto insurance costs have risen nearly 12% from where they were a year ago. With maintenance and repair costs up 5.9%, vehicles remain a big source of pain for monthly budgets.
And it’s not just personal vehicles that are getting more expensive; airfare and mass transit costs are rising too, as companies struggle to keep up with increased material costs and demands for increased wages.
As for housing, rent costs have increased nationwide. Prospective homebuyers have held out hope that more rate cuts would finally bring down mortgage costs. But after the three rate cuts of late 2024, and a new presidential administration making huge and potentially impactful policy changes in Washington, it could be a while before we see material declines in mortgage rates.
“Even if the Fed cuts rates in 2025, it's likely to be 6-8 months away, as we are still too far from the Fed’s inflation target for the Fed to continue their rate cut march anytime soon,” says Skyler Weinand, chief investment officer at Regan Capital. “The Fed needs to see more employment and inflation prints before they can start to telegraph their interest rate plans.”
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What can you do to combat inflation’s effect on your wallet?
While conventional wisdom will talk about shopping for the best prices, analysts at consumer insights leader J.D. Power encourage consumers to spend some time with services offered by your bank or credit card company to help you set up a spending plan or budget. Many times, these services don’t cost the consumer anything to use—but few customers actually take advantage of them.
Jennifer White, a senior director of banking and payments intelligence at the company, suggests that this may be because consumers feel they don’t have enough money to make the tools worthwhile, but that isn’t necessarily true. She counters this argument by saying, “While it may be true that knowing where your money is going and using a budget may not make more money appear in your bank account, this level of engagement with your financial situation can make you feel more financially empowered.”
Try implementing strategies such as the 50/30/20 rule in your everyday finances, and you may be surprised at how much further you can stretch a dollar. White also recommends optimizing your selection of banking and credit card partners. “If you are in the position to have an emergency fund or some savings set aside, consider keeping those deposits in a high-yield savings account versus a traditional account not earning interest,” she says.
