If affordability dominates the midterm cycle – and it certainly may – then Donald Trump enters the fray with a pretty good hand.
The latest economic developments have buoyed the White House as it girds for the fight to hold the House and Senate. Annualized real GDP reports for the third quarter of 2025 showed explosive growth above inflation, hitting 4.3%, a two-year high. The trade deficit “unexpectedly” improved to its best showing in 16 years, a result of Trump’s tariff policies. The risk of both would normally be spiking inflation.
Today, however, the Bureau of Labor Statistics shows the Consumer Price Index inflation level as flat, and with core inflation less than analysts expected in December:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent on a seasonally adjusted basis in December, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.
The index for shelter rose 0.4 percent in December and was the largest factor in the all items monthly increase. The food index increased 0.7 percent over the month as did the food at home index and the food away from home index. The index for energy rose 0.3 percent in December.
The index for all items less food and energy rose 0.2 percent in December. Indexes that increased over the month include recreation, airline fares, medical care, apparel, personal care, and education. The indexes for communication, used cars and trucks, and household furnishings and operations were among the major indexes that decreased in December.
The all items index rose 2.7 percent for the 12 months ending December, the same increase as over the 12 months ending November. The all items less food and energy index rose 2.6 percent over the last 12 months. The energy index increased 2.3 percent for the 12 months ending December. The food index increased 3.1 percent over the last year.
The 2.7% annual CPI still remains above the Federal Reserve’s usual two-percent ceiling, but it’s been stable since a small price spike over the summer. Even that spike didn’t get to the same level as the two months before Trump took office, when core inflation remained above 3%.
The Wall Street Journal notes that the report met analyst expectations overall, while beating some specific expectations:
Economists surveyed by The Wall Street Journal had expected the consumer-price index to increase 2.7% over the year in December, and the core measure to rise 2.8%.
Prices rose a seasonally adjusted 0.3% on the month in December, in line with economists’ expectations.
Core prices rose 0.2% over the month in December. Economists had expected a 0.3% rise in that measure.
One key point is that the BLS had a full data set for December. It skipped the October report due to the Schumer Shutdown, and then had to use a partial set of data for the November CPI report. Analysts warned that the rump report likely underestimated consumer-price inflation. Today’s report makes those concerns appear unfounded, or at least unrealized.
The question now will be what the Fed does with this data. Their concerns over inflation have focused on Trump’s tariffs and on the tax cuts in the One Big Beautiful Bill. So far, it’s pretty clear that the tariffs haven’t impacted consumer prices. The impact of the tax cuts remains to be seen, since those would have just come into effect, but that has been a lesser worry. The Fed can now take the job-creation market as a more pressing issue for its rate-setting decisions, although they may want to look at the PCE Index – their normal metric for measuring inflation – before making any more adjustments. That should come out next week, and the Fed will meet the week after that to decide on any rate changes.
Meanwhile, this helps Trump on the affordability argument, even if it’s not as clear a win as the White House would like. Seeing this dip down further to 2% would be a much cleaner result for Trump’s economic policies. However, as long as GDP continues to produce red-hot growth numbers and if the jobs reports start showing real expansion, it will be a strong hand for Trump and the GOP for their stay-the-course message.
Here’s CNBC’s Rick Santelli reacting to the numbers in real time, and his positive reaction speaks volumes.
Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.
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