America is seen facing even more inflation as the CPI unexpectedly heats up

US inflation concerns have returned to center stage. More Federal Reserve cuts this year look less likely. Economists and consumers alike are becoming more worried that price increases will be too stubborn for the Fed to tame – even before any effects of President Trump's threatened tariffs feed through.

This week's data showed January headline consumer prices rose 3% year-on-year, outpacing the consensus estimate that inflation would plateau at 2.9%. That marked a fourth consecutive monthly acceleration. Core inflation (which excludes volatile items like food and energy) reached 3.3%, up from 3.2% in December; markets were expecting a slowdown.

We've tapped consensus forecasts from FocusEconomics to chart how expectations have steadily increased since Trump's election win. Participating panelists project that inflation for 2025 will be 2.6%, according to the most recent February estimate; in November, projections were for just 2.3%. Expectations have ratcheted up every month.

Inflation forecasts for 2026 have increased too, as our second chart shows; February's estimate (unchanged from January) calls for only a slight slowdown to 2.5% for next year.

Financial markets are signaling increased inflation expectations too.

The breakeven inflation rate – the spread between a nominal bond yield and the inflation-protected security with the same maturity – is a key gauge for expectations. It has been on an upward path since mid-September 2024, right before Fed started cutting rates.

At the end of October, the 5-year and the 10-year rates crossed paths; the 5-year indicator outstripped the longer-term one, suggesting faster price growth in coming years that might potentially cool down later.

Former Fed governor Bill Dudley recently said that consumers are considering the future effects of Trump's tariffs – pointing out that the Feb. 21 University of Michigan sentiment indicator becomes a key report to watch.

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