Inflation has been a hot-button issue in the United States for the past year. Throughout the election cycle, Donald Trump and Kamala Harris made the economy a huge part of their campaigns. In his first month in office, prices of goods have been closely watched as the new president attempts to stabilize the economy and avoid a recession. There was some good news at the end of February. Inflation fell in January, but that did not translate to more spending. Amid tariff fears, consumers slashed their spending in the past month.
Inflation Improves, But Customer Spending Drops
There is good news for many Americans in the report from the Commerce Department on Friday. In December, inflation was at 2.6%. January saw a 0.1% drop, settling in at 2.5%. If we exclude food and energy costs, which have been the most volatile, prices dropped by 0.3% to their lowest point since June 2024. Despite this, Americans cut their spending by almost 0.2% in the first month of the year. Some of this is due to the cold temperatures and bad weather across the country, but Stephen Stanley, chief U.S. economist at Santander, offered a different take.
โThe roller coaster of news headlines emanating from Washington D.C. is likely going to push businesses to the sidelines for a time and even appear to be impacting consumers.โ
The White House is certainly putting Americans on one wild ride. President Trump has entered office determined to make good on his promises. He has wasted no time in putting his plan into motion. While it remains to be seen whether his plan will be successful, the wild ride has made many people uncomfortable about the economy. However, the report also indicated that consumers saw a 0.9% increase in personal income and that the personal savings rate spiked to 4.6%. People have more money but are wary of spending.
Tariff Anxiety
While the economy’s health is due to many factors, tariffs have recently been the biggest talking point. Trump has made a big show of his plan to bring jobs back to the United States and punish the countries who have reportedly taken advantage of us for years. Unless something changes over the weekend, the president has confirmed he plans to go through with the planned tariffs on Tuesday. The lack of spending from consumers and businesses is likely due to the fact that everyone is in “wait-and-see” mode, as World Emblem CEO Randy Carr pointed out.
โItโs so annoying. Right now you have this volatility, and so you really canโt plan anything. You just got to wait until we get a final verdict from from the administration. Itโs definitely not punishing Mexico, itโs punishing us.”
Everyone is waiting for the final verdict. Until something actually happens, consumers and businesses will not know the real effects. This makes planning any type of spending impossible. Much debate has been on whether tariffs will help or hurt the economy. While there are many defenders, no one seems to be making any big moves until things actually go into effect.
Final Thoughts
If everything holds, we will get an answer soon of what the economy will look like moving forward. Things change fast in politics, and an eleventh hour deal could be struck. Whatever happens, inflation will continue to be on the minds of many Americans in the coming months.
