What drove inflation in 2025
Executive summary
Inflation in 2025 was driven by a mix of housing and medical-care price strength, a rebound in goods prices (partly tied to tariffs), and episodic energy and food swings; headline CPI hit about 2.9–3.0% in mid‑to‑late 2025 while core measures stayed higher in many months (core PCE around 2.7–2.8% in early‑to‑late 2025 according to reports) [1] [2] [3]. Analysts and institutions disagree over the proximate cause — some point to firm pricing decisions and markups, others to cost pressures and trade policy — but nearly all sources cite housing, services, tariff-driven goods price pass‑through, food and energy as central contributors [4] [5] [1] [6].
1. Housing and medical care: the heavyweight contributors
Government breakdowns show housing (shelter, rent, owners’ equivalent rent) and medical‑care inflation supplied the largest share of the 2025 rise in CPI: as of September 2025 overall CPI was about 3.0% year‑over‑year, and housing plus medical care alone accounted for roughly two‑thirds of that annual increase, with shelter inflation running near multi‑percent annual rates [2] [4].
2. Goods reinflation and tariffs: headline jolts concentrated in apparel and durable goods
After a period where goods prices fell, economists documented a reinflation in consumer goods in 2025. Wells Fargo’s Sarah House and contemporaneous reporting signaled that tariffs and trade policy were putting upward pressure on clothing, furniture and other physical goods — a delayed pass‑through that could accelerate as firms adjust pricing strategies [1] [6].
3. Energy and food: volatile, visible swings that move monthly readings
Gasoline and electricity spikes produced visible month‑to‑month jumps in headline CPI (for example gasoline and energy contributed to the September uptick), while food inflation remained above trend in many months; the USDA and related analyses list energy, weather, plant/animal disease and trade patterns as direct drivers of food price changes [6] [7].
4. Services inflation and the labor/link debate
Non‑housing core services — including airfares, lodging and other services — picked up at times in 2025, and while labor market loosenings were cited by some forecasters as easing pressure, services inflation stayed elevated enough to keep core measures above the Fed’s 2% target in parts of the year [2] [8].
5. Monetary policy, expectations and the Fed’s dilemma
Commentary and forecasting papers warned that persistence in early‑year months could keep core PCE elevated (the Dallas Fed highlighted potential first‑quarter persistence and projected core PCE around 2.7% annualized under some scenarios), complicating decisions about rate cuts even as some in the Fed argued for easing to protect the labor market [8] [3].
6. Firms’ pricing decisions vs. classic cost‑push explanations
There are competing narratives in the sources: the Richmond Fed economic brief emphasizes that the proximate cause of price changes is firms’ pricing decisions and markups — a “pricing‑behavior” explanation — while other sources stress cost‑push factors (energy, supply chains) and trade/tariff pass‑throughs as the mechanical drivers [5] [9] [6].
7. Tariffs as a recurring theme and an amplification channel
Multiple private analysts and media reports tied the administration’s tariff agenda to higher projected consumer costs in 2025 and warned of delayed pass‑through; J.P. Morgan and other researchers flagged a tariff‑related lift to core inflation in the latter half of 2025, underscoring trade policy as an amplifier rather than the sole cause [6] [10].
8. How much of 2025 inflation was “carryover” from 2024?
Treasury reporting noted that elevated annual CPI partly reflected strong price pressures from September 2024 through January 2025 — periods of high month‑to‑month gains that later translated into higher 12‑month readings in 2025 even when monthly growth slowed, so some of the 2025 rate was a carryover effect [2].
9. Limits of available reporting and remaining uncertainties
Available sources document the big categories and plausible mechanisms but do not settle a single root cause: they show consensus on housing/services and tariff‑linked goods pressures, but disagree on the balance between firms’ pricing behavior and traditional cost‑push/demand factors [4] [5] [9]. Sources do not provide a unified quantitative decomposition attributing exact percentage points to each driver beyond the housing/medical two‑thirds statement [4].
10. What to watch next
Key indicators to monitor are shelter inflation trends (monthly shelter gains), core PCE readings in early quarters, gasoline/electricity movements, tariff policy changes and corporate pricing statements; these will reveal whether 2025’s rise was transitory, a policy‑amplified pass‑through, or a longer persistence driven by firms’ markups and services‑sector momentum [2] [3] [1].
Limitations: this analysis uses only the provided reporting and official releases; available sources do not mention some granular decompositions (e.g., firm‑level markup time series) that could definitively resolve the pricing‑behavior vs. cost‑push debate [5].