The Truth About Inflation in 2025

Summary

The Ramsey Show Highlights: The Truth About Inflation in 2025 Release Date: February 10, 2025

In the February 10, 2025 episode of The Ramsey Show Highlights, hosted by the Ramsey Network, experts delve deep into the intricate dynamics of inflation, exploring its causes, effects, and the pervasive impact it has on everyday Americans. The episode, titled "The Truth About Inflation in 2025," offers listeners a comprehensive analysis of inflation trends, wage dynamics, and the long-term implications for both consumers and businesses.

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1. Understanding Inflation and the Federal Reserve's Role

Speaker A begins by contextualizing the ongoing inflationary trends and the Federal Reserve's efforts to manage them:

"The Fed is attempting, sometimes I agree with them, sometimes I don't, but they are always attempting to keep inflation in that 2, 2 and a half percent range or so." [00:34]

He highlights Jerome Powell's prominence as the Fed Chair and underscores the challenges faced in maintaining inflation targets. The discussion emphasizes the delicate balance between controlling inflation and ensuring wages keep pace, a task that has proven arduous over extended periods.

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2. Perceived vs. Actual Inflation Trends

Speaker B, Jake, shares his observations and concerns about the fluctuating inflation landscape:

"We knew in 2022 that inflation was going bananas. Like, we felt it, the numbers were there, the data supported what we were feeling was true." [01:14]

Jake recounts the initial surge in inflation during 2022, subsequent stabilization, and the surprising trend of wages beginning to outpace inflation around March 2023. This anomaly prompts him to question the true state of the economy, especially when juxtaposed with persistent consumer complaints about rising costs.

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3. The Sustainability of Wages Outpacing Inflation

Speaker A counters Jake's observations by asserting the unsustainability of wages consistently outpacing inflation:

"Wages can't outpace inflation on the regular because it just gets to be too much like you just it." [03:14]

He explains the cyclical nature of wages and inflation, describing it as a "roller coaster." Speaker A emphasizes that while there may be brief periods where wages rise faster than inflation, this trend cannot be maintained long-term without detrimental effects on the economy.

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4. Historical Price Increases Since 2019

Delving into specific data, Speaker A provides a historical overview of price changes in essential goods since December 2019:

"If we're January 2025, if you go to December 2019, US prices cumulatively are up 23%." [05:02]

He cites examples such as a four-pound bag of Domino Sugar increasing by 74% and a dozen eggs by 83%, illustrating the significant cost hikes in staple items. This substantial rise in everyday goods underscores the tangible impact of inflation on household budgets.

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5. Impact of the Pandemic on Inflation

The episode further explores the root causes of the current inflationary pressures, attributing much of it to the COVID-19 pandemic's far-reaching effects:

"We go into the pandemic, Jade starts in, let's call it 2020, early 2020, and the whole world shuts down all Right." [06:42]

Speaker A discusses how the pandemic led to supply chain disruptions, increased demand for certain goods, and scarcity, all of which fueled price increases. He references an article stating:

"Big price increases are rarely followed by equally big price decreases." [07:51]

This insight highlights the long-lasting nature of price surges resulting from significant economic disruptions.

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6. Long-Term Implications for Consumers and Businesses

The conversation shifts to the enduring effects of inflation on consumer behavior and business practices:

"While the inflation rate has cooled, your $4 sugar is here to stay." [07:54]

Speaker A warns that unless faced with severe economic downturns, businesses are unlikely to revert to pre-inflation pricing. This permanence contributes to what he describes as the "evil capitalism cries," where consumers resent businesses for not reducing prices despite cooling inflation rates.

Furthermore, Speaker B notes the emergence of cost-cutting measures by businesses, such as the shift to digital menus:

"Sam and I went out to dinner and you know, everybody has the menus on the screen now that you do the qr, which I hate because it makes you get your phone out at dinner." [09:02]

These changes reflect businesses' attempts to reduce operational costs in response to sustained higher prices for goods and services.

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7. Conclusion: The New Normal of Persistent Higher Prices

In wrapping up the discussion, both speakers acknowledge the dual nature of the current economic climate:

"Good news is inflation, as we see it, is cooled. Bad news is companies don't just go, well, you know what? For the last five years, people have been paying $4.66 for this sugar. And we used to sell it for only $2. Let's go back there." [08:25-08:43]

They conclude that the era of rapidly rising prices has tempered, but the elevated price levels are likely here to stay. Consumers must adjust to this "new normal," recognizing that while inflation rates may stabilize, the cost of essential goods remains significantly higher than pre-pandemic levels.

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Key Takeaways:

• Federal Reserve's Role: The Fed continues to strive for a 2-2.5% inflation target, balancing monetary policy to manage economic stability.

• Wages vs. Inflation: While there have been periods where wages outpaced inflation, this trend is unsustainable and unlikely to persist long-term.

• Persistent Price Increases: Essential goods have seen substantial price hikes since 2019, with some prices remaining elevated due to ongoing economic factors.

• Pandemic's Lasting Impact: COVID-19-induced disruptions have had a prolonged effect on supply chains and demand patterns, contributing to sustained inflation.

• Consumer and Business Adaptations: Businesses are adopting cost-saving measures in response to higher operational costs, affecting consumer experiences (e.g., digital menus).

This episode serves as a crucial resource for listeners seeking to understand the complexities of inflation and its pervasive impact on daily life, providing both historical context and forward-looking insights.

Transcript

[A]

Brought to you by the Every Dollar App. Start budgeting for free today. My partner and I here, we were talking earlier in the show and we talk all the time around the office about this inflation. Right. And just there is a natural progression of inflation over time. The Fed, just a kind of a quick review here because. Because Jake's got a little something to share here today. So teeing you up here because everybody's heard about the Fed. Jerome Powell, unfortunately, has become a name that everybody knows.

[B]

Yeah.

[A]

And and to his credit, the Fed is attempting, sometimes I agree with them, sometimes I don't, but they are always attempting to keep inflation in that 2, 2 and a half percent range or so. And when it gets above that, they start paying attention. And this is where we get the monetary policy and you all are paying attention to the headlines all the time when you see, are they raising rates, are they dropping rates? All this kind of stuff. So it's always an interesting tension between wages. Are wages going up, are they outpacing the inflation? Pacing inflation, Very hard for that to happen over long term. So anyway, nonetheless, what do you got here? You got a little something for us?

[B]

Well, I'm just trying to, I'm trying to make heads or tails of all of it.

[A]

Right.

[B]

Because it's like we knew in 2022 that inflation was going bananas. Like, we felt it, the numbers were there, the, the data supported what we were feeling was true. But then we started to see inflation taper off and we saw wages start to jump ahead. But yet we were still saying, oh, it's so expensive out there, it's so crazy. And so my thought was like, okay, what's really happening? Because, you know, you're a guy that's following employment, you're following those numbers. And I'm looking at this graph here that I saw that really around March of 2023, a little earlier, wages really did start outpacing inflation at a decent rate. And I thought, okay, that means that we've got a little bit more margin back as American people, where is this money going? So I started looking around and, you know, obviously we feel it at the grocery store. Like, that's the main place people say, oh my gosh, it's so expensive. And around about the time I was looking at this, I saw that NPR came out with a grocery study that basically said they followed the prices of groceries from 2019 until today. They went to Walmart and they picked, I believe it was 100 different items. And they said, we're going to track this over the course of six years, basically. And what they found is on average, out of those items that they tracked, 21 of the items actually got cheaper, 27 products got more expensive, and the rest of them basically stayed the same. And when you think about it, you're like, okay, that's interesting. That's not as much as I would have thought. Like, I'm thinking everything has gone crazy, everything's exploding. And so again, I'm like, okay, things have started to taper out. What's going on with this money? We're also seeing articles that are saying, like, people are spending more on their credit card than ever before, but at the same time, like, investments are doing better than ever, ever before. So the question is, is there margin and what are people doing with it? Is it true that wages are actually outpacing inflation? And from your point of view, what do you think about that?

[A]

Well, no, they're not and they can't. It's unsustainable. So for instance, if we look, if we look from a macro, so, so real big picture, um, you know, wages can't outpace inflation on the regular because it just gets to be too much like you just it. So there's this give and take between wages. It kind of, kind of comes up and down. It's a bit of a roller coaster.

[B]

So even if you see it at a moment, you're saying it doesn't generally last.

[A]

It does not. So you don't want to get into an apples for apples is what I'm saying. The conversation that, this idea that, well, inflation over the last quarter was this. So wages should have done that. It's not how that works. You're looking at the total. This is kind of a complex conversation and I'm trying to keep it simple, keep it simple, but, you know, you can't, you can't force on companies this idea. When you're in an inflationary period like we, we had been, if you go back about two years ago and inflation's really, really high, you cannot expect companies to go well, because inflation is up here. I got to raise everybody's wages because that again, that drives more inflation.

[B]

Right?

[A]

Because when they raise wages, they're raising their expenses, they pass those. So you got to be careful is my point. So this, this, this back and forth and trying to keep that. That's not what you want. What's interesting about this article, as you were talking that I saw the reason why people feel and really see it at the grocery store, by the way, we saw this talked about in the media Leading up to this last election.

[B]

That's right.

[A]

You saw it on msnbc, you saw it on CNN and Fox. My point is it didn't matter what side of the aisle. Everybody was feeling the pinch on a lot of consumer goods. And this is what's interesting. If you look at 2019.

[B]

Yeah.

[A]

So this is right before the pandemic, remember? Just kind of a quick history lesson. Because this is crazy. It doesn't seem like it was that long ago.

[B]

No, it doesn't.

[A]

But here we sit almost five years. We're almost five years to the day. Not quite, but five years, a couple weeks when the pandemic really begins to hit. The U.S. march. March, yeah. That's when it started going bananas. But we now know it was at the Super Bowl.

[B]

That's right.

[A]

In Miami, you know, nobody knew. All right, so here's the point. So if we're January 2025, if you go to December 2019, US prices cumulatively are up 23%. That's where people are feeling it. For instance, a four pound bag of Domino Sugar now costs $4.46. That's 74% more than 2019. Compared a dozen eggs, $4.90. That's 83% more Tide Liquid. I could keep going on and on. Why? These are the staples. So when you're buying these every week, these aren't your.

[B]

Yeah, you feel it.

[A]

So that's interesting.

[B]

So, well, this is. Then that's, that's. I mean, it goes back to our conversation earlier when we were talking about the tariffs and new administration and that sort of thing. If we were feeling it before and it was because of other issues, you know, back then, right now they're saying the prices are up because of, you know, all sorts. It could be utilities and insurances for businesses to run. And so they're passing that along to the consumer. It could be extreme weather. Right. With crops. And so because of that, that price is passing on to the consumer. But then if you add, I don't know, other things coming into this. So you're saying, basically what you're saying is. No, the consumer has every right to feel this. And, and even if they have, it's real. Yeah.

[A]

So here's what's happened. You can't get all hung up in inflation, cost per month, because what happens is you have large spikes. So back to the quick timeline. This will be helpful for folks. We go into the pandemic, Jade starts in, let's call it 2020, early 2020, and the whole world shuts down all Right. So in that moment, you did have multiple, let's call it storms converging for a massive, once in a generation, I hope, financial storm.

[B]

Yeah.

[A]

One, the scarcity. Because we had supply chains interrupted. The whole world shut down for a while. Every state was different. Every country was like, what are we doing? Secondly, demand did increase a couple months in when people started going, okay, I'm at home, I'm working from home, but I got to have food. Remember, we saw liquor stores, things. So here's what happened. This is interesting. So. So all of that comes into natural economic factors, which makes demand higher and scarcity. And that created an increase. Here's what this article says, and it's absolutely right. Big. I'm reading from this article. Big price increases are rarely followed by equally big price decreases.

[B]

That's right.

[A]

Historic. Well, it's like, that's what I want to tell everybody.

[B]

They're not going to. It's not going to go back to what it was.

[A]

That's the key point. While the inflation rate has cooled, your $4 sugar is here to stay.

[B]

It's not leaving.

[A]

That's what's unfortunate.

[B]

Well, that.

[A]

And that's unless you get into depressionary and very serious recessionary forces that can make those go down. But by and large, if we stay in a somewhat healthy economy, Jade, these prices are here to stay.

[B]

Yeah, I mean, it's got, like you said, it's gone up 25%, but over the last year, it's gone up less than 1%. So it's not still climbing at that ridiculous rate.

[A]

Good news, bad news.

[B]

Yeah.

[A]

Good news is inflation, as we see it, is cooled. Bad news is companies don't just go, well, you know what? For the last five years, people have been paying $4.66 for this sugar. And we used to sell it for only $2. Let's go back there.

[B]

They're not gonna go back.

[A]

And so there comes in the evil capitalism cries and the rub between. And by the way, this is the tension that exists in America today.

[B]

Absolutely.

[A]

Is. People go, wait a second, you used to charge me this, now you're charging me this.

[B]

Come on, think about it.

[A]

So there's the tension.

[B]

Sam and I went out to dinner and you know, everybody has the menus on the screen now that you do the qr, which I hate because it makes you get your phone out at dinner. Figured out. That was one of the things that they figured out. This is a lot cheaper for us.

[A]

Right.

[B]

And we ain't going back.

[A]

Yeah, they're not going to print menus. You know what else they figured out? Go to the coffee shop in my neighborhood, Sweet little gal, makes me a coffee, then turns the screen and goes.

[B]

Would you like a tip?

[A]

I feel like going, no. I just want my coffee. This is the Ramsey Show. Create your free every dollar budget today. The simplest way to budget for your life.