A federal gas tax holiday, while politically popular, would offer little relief to consumers. In a supply-constrained energy market, most of the tax savings would be captured by refiners and retailers rather than passed on at the pump. The policy also worsens the deficit in the Highway Trust Fund.
A methodological catch-up by the Bureau of Labor Statistics after a government shutdown artificially inflated the most recent monthly shelter CPI figure. However, this correction means the year-over-year inflation rate is now a more accurate reflection of reality, after being suppressed in previous months.
The Consumer Price Index shows weak or falling medical care inflation, particularly for health insurance. This is likely a statistical artifact tied to insurer profitability metrics, not a reflection of consumers' actual out-of-pocket expenses. Real-world healthcare costs for households are probably not decreasing as the data suggests.
While equities had a mixed reaction to inflation data, the bond market shows clearer concern. FedWatch data reveals a significant shift in expectations over the past month, with the probability of a 25 basis point rate hike by year-end rising to 30%, while the probability of a cut has diminished.
The economy has been supported by temporary factors like AI mitigating tariff impacts and tax cuts offsetting energy shocks. Now, with inflation persisting, there are no clear monetary or fiscal policy levers available for a quick rescue. The Fed cannot cut rates, and significant new fiscal support is unlikely.
Despite 15% tariffs on imported cars and parts, new vehicle prices have seen minimal pass-through to consumers. This surprising lack of inflation suggests strong offsetting deflationary pressures or a much longer-than-expected lag before costs are reflected in sticker prices, challenging conventional economic models.
The US economy's recent resilience was significantly cushioned by large tax refund checks, which offset rising energy and food costs. As the benefit of this fiscal stimulus wanes, the true negative impact of sustained high inflation on consumer spending and real income will become much more apparent and severe.