Key Inflation Metric Hits 3 Percent, Despite Trump's Claim That Rising Prices Are 'Solved'
The new producer price index report complicates the administration's push for lower interest rates.
Inflation is stubbornly refusing to be vanquished by presidential edict.
Prices paid to domestic producers for their goods jumped by 0.5 percent during December, according to Department of Labor data released Friday morning. That surge in higher wholesale prices brought the annualized producer price index (PPI) to 3 percent for the year. December's sharp increase in the PPI defied expectations and followed tamer increases of 0.1 percent in October and 0.2 percent in November.
More alarming is the so-called "core PPI," which does not include more volatile categories like food and fuel prices. In December, core PPI increased by 0.7 percent, and climbed by 3.3 percent over the course of last year.
The PPI is often seen as an early warning signal about inflation at the consumer level—that's what is measured by the more well-known consumer price index, which rang in at 0.3 percent in December and 2.7 percent for 2025. That's because higher prices at the wholesale level will likely be passed along to the retail level in the coming months.
The new inflation report comes at an awkward time for President Donald Trump, who declared earlier this week that inflation had been "solved."
"It's over," Trump told an Iowa crowd at a Fox News town hall event. "We have it good where prices are coming way down."
The data also figures to complicate the ongoing fight between Trump and the Federal Reserve. Trump wants the central bank to cut interest rates more quickly to help juice the economy, but the Federal Reserve voted earlier this week to hold interest rates steady, in part because "inflation remains somewhat elevated."
High interest rates are generally seen as a check against inflation, since they encourage households and businesses to save rather than borrow or spend. Lower interest rates would ease budgetary pressure from the national debt and could make it easier for Americans to borrow, but they also might trigger another bout of higher inflation at a time when prices are already rising faster than the Fed's stated goal of 2 percent annually.
Hours before the new inflation report was published on Friday, Trump named Kevin Warsh, a former member of the Federal Reserve's board, to be the next chairman of the central bank. Warsh must be confirmed by the Senate. Federal Reserve Chairman Jerome Powell's term ends in May, but Trump has been trying to force Powell to step down earlier.
Trump may not be able to reduce inflation by changing the leader of America's central bank or by declaring prices to be falling, but he's also not totally powerless. It is undeniable that Trump's tariffs are putting upwards pressure on prices, while also not providing the economic boost the administration promised.
Until that policy changes, it's hard to take Trump seriously when he talks about making life more affordable.
