An earlier series of posts tracked the path of the CPI, wages, and inflation-adjusted (or real) wages during President Biden’s term of office, starting when it became apparent that inflation was accelerating early in his term. We have a new President now, and President Trump has been in office for well less than one year. Given the concerns expressed in the press about inflation, especially as to how it relates to tariffs, here we look at the CPI and real wages during the early months of President Trump’s current term.
The data used here is the headline CPI, the CPI-U, seasonally adjusted, as well as the average hourly earnings of all employees in the private sector, also seasonally adjusted. These data are released by the Bureau of Labor Statistics every month, and currently both data series are available through the month of August 2025.
The first graph below shows the CPI, rebased to 100 at the beginning of each administration. For President Biden, the price level in the graph is set to 100 in January 2021, his inauguration, and then that price level changes by the same percent as the CPI changes for all months through January 2025, the end of the Biden Administration.
For President Trump, the graph again has a rebased price level set to 100 in his inauguration month, January 2025, and then that price level changes by the same percent as the CPI changes for all months that follow. Currently the available data is through August 2025, 7 months from President Trump’s term inauguration month.
The Federal Reserve’s 2% per year target for inflation is also shown.[1] That dashed line indicates the path the CPI would take if it was to grow monthly at a rate that generated 2% per year inflation.[2]
The price graph is revealing. The blue line shows the movement in the CPI during President Biden’s term, with the initial period of rapidly rising prices from January 2021-June 2022, followed by slower but still-rising price level growth from the summer of 2022 until the end of his term.
The red line shows the price level increases during these early months of the President Trump’s current term. It is hard to distinguish the red line from the Fed’s target line in grey. Prices have risen from January through August at an annual rate of 2.32%, not far above the Fed’s 2% target path. [3]
What about real wages? Real wages only increase if wage increases exceed price level increases. The path of real wages during the Biden presidency and during the early months of the current Trump Administration are shown in the second graph. Real wages fell during the early period of the Biden Administration, as the CPI increased more rapidly than wages were growing, resulting in a decline in the purchasing power of wages. This occurred during the period from January 2021 – summer 2022. Afterwards, real wages increased, slowly, for the remainder of President Biden’s term in office. However, the purchasing power of real wages never quite made it back to the level of January 2021.
During President Trump’s short second term, real wages have grown at a 3.37% annualized rate while prices have grown at an annualized rate of 2.31%. The result has been an annualized growth in real wages, in the growth of wages over and above the growth in the price level, of 1.04%.[4]
None of this is all that telling about where we might find ourselves in the coming months. The first seven months of a forty-eight month term in office is much too short to render judgement.[5] Further, I would share the concerns of many economists about the economic impact of high, and highly volatile, tariff rates. These will likely slow economic growth. Forecasts of a continuation of our unsustainable fiscal deficits into the indefinite future are even more concerning, as is the related entitlement crisis. The Federal Open Market Committee’s Summary of Economic Projections has had its median inflation forecast for calendar year 2025 grow from 2.5% in December 2024 to 2.7% in March 2025 to 3.0% in June 2025 and September 2025 releases. All signs point to rising inflation rates.
Despite these concerns, the rate of increase in the CPI through August has not yet been particularly high, and one could argue it has been quite close to the Fed’s target, given that the CPI tends to rise slightly faster than the PCE Price Index. Additionally, real wages have been increasing. While these are only two dimensions of the economy, and it bears repeating the investment caveat that past performance does not guarantee future results, it is also true that in these two dimensions, we could be doing much worse.
ENDNOTES
[1] The Federal Reserve’s target is actually stated in terms of the Personal Consumption Expenditure Price Index. Relative to this PCE Price Index, the CPI generally overstates inflation. From January 2000 through July 2025, the PCE Price Index grew at an average annual rate of 2.18%, while the CPI grew at an average annual rate of 2.55%. That is, the CPI tends to grow on average about 0.37% faster per year than the PCE Price Index. If the Fed were to hit its 2% inflation target as measured by the PCE Price Index target, the measured CPI inflation rate, based on this historical experience, would be about 2.37%.
[2] The Federal Reserve’s target is stated as the year-over-year change in the PCE Price Index. The target, in term of the price index, is fairly graphed as shown in Figure 1. However, given the higher monthly increases in the price index during the six months preceding January 2025, the year-over-year inflation rates calculated for the CPI for August 2025 would be 2.94%. The growth in the CPI, annualized, was 3.83% from August 2024 to January 2025, and 2.31% from January 2025 to August 2025.
[3] Other price indices give somewhat higher inflation readings. The PCE Price Index is available from January 2025 through July 2025, and the increase over this six month period, annualized, is 2.48%. For the core CPI (CPI less food and energy prices), the annualized inflation rate (January – August 2025) has been 2.68%, and for the core PCE Price Index the annualized inflation rate (January – July 2025) has been 2.99%. Some forecasters consider the core inflation rates to better predict future inflation rates in the broader (non-core) measures, so the current higher cores inflation rates would be considered a harbinger of higher inflation rates in future months.
[4] To put this in perspective, real wages from March 2006 through August 2025 grew by an average annual rate of 0.6%. The growth rate (annualized) of real wages over the first seven months of President Trump’s current term is above this long-term average.
[5] President Trump’s first term provides a good example of what can happen. For the first three years inflation was low and both real wages and real GDP were rising while the unemployment rate was falling. This occurred right up until COVID struck in early 2020, literally changing the world as well as the state of the economy.