Washington, Oct 12 (AP) Inflation has increased in three of the last four months, currently standing slightly higher than a year ago, a situation that previously hampered then-Vice President Kamala Harris’ presidential campaign. Despite this, both President Donald Trump and some Federal Reserve officials have downplayed the inflation issue.

During a recent address at the United Nations General Assembly, Trump claimed, “Grocery prices are down, mortgage rates are down, and inflation has been defeated.” Similarly, Federal Reserve Chair Jerome Powell stated in August, prior to the Fed’s first interest rate cut of the year, that “Inflation, though still somewhat elevated, has come down a great deal from its post-pandemic highs. Upside risks to inflation have diminished.” However, underestimating inflation, which remains above the Fed’s 2 percent target, poses significant risks for both the White House and the Federal Reserve. Surveys indicate that many Americans continue to perceive high prices as a major financial burden.

The Federal Reserve’s recent interest rate cuts are based on the assumption that the Trump administration’s tariffs will only cause a temporary inflation spike. Should inflation worsen or persist longer than anticipated, the Fed’s credibility in combating inflation could be jeopardized. This credibility is vital for maintaining price stability; if the public trusts the Fed to manage inflation, they are less likely to demand higher wages, which could trigger an inflationary spiral.

Karen Dynan, a senior fellow at the Peterson Institute for International Economics, warned that with recent inflation experiences still fresh in consumers’ minds and tariffs increasing the cost of imports, confidence in sustained low inflation could wane. Dynan remarked, “If that proves to be the case, in hindsight it will be that the Fed cuts — and I do expect several more — are going to be seen as a mistake.”

Currently, the Trump administration’s tariffs have not significantly raised inflation as many economists had predicted earlier this year, with inflation remaining well below its peak of 9.1 percent three years ago. However, consumer prices rose by 2.9 percent in August compared to the previous year, an increase from 2.6 percent the year before and above the Fed’s target.

The government is set to release the September inflation report on Wednesday, although the data may be delayed due to the government shutdown. Tariffs have increased the costs of various imported goods, including furniture, appliances, and toys, with long-lasting manufactured goods seeing nearly a 2 percent rise in costs from the previous year.

Everyday goods are experiencing price hikes, with grocery prices climbing 2.7 percent in August, marking the largest increase outside the pandemic since 2015. Coffee prices have surged nearly 21 percent over the past year, influenced by a 50 percent import tax on Brazilian coffee and climate change-related droughts affecting harvests.

Despite concerns about high inflation, Fed officials opted to cut interest rates, prioritizing the risk of rising unemployment over inflation. Economists express apprehension that ongoing tariffs and companies’ price hikes could lead to sustained inflation rather than a temporary increase.

Jason Furman, an economist at Harvard University and former adviser to President Barack Obama, cautioned, “It is a big gamble after what we’ve been going through … to count on it being transitory.” Recently, Trump imposed new tariffs on various products, including 100 percent on pharmaceuticals and 50 percent on kitchen cabinets, while threatening further tariffs on Chinese imports.

Companies are responding to tariff costs with price increases. For instance, Campbell Soup’s CEO noted that tariffs on steel and aluminum have raised the costs of cans, prompting the company to implement “surgical pricing initiatives.” Chris Butler, CEO of National Tree Company, announced a 10 percent price increase for holiday products to offset tariff impacts, citing high labor and real estate costs as barriers to domestic production.

Butler anticipates a reduced supply of artificial trees and decorations this year due to earlier production shutdowns in China, which could further elevate prices. He stated, “At the end of the day, we can’t absorb the entirety of it and our factories can’t absorb the entirety of it. So we’ve had to pass along some of the increases to consumers.”

Many Fed policymakers recognize the risks associated with inflation. Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, emphasized that high inflation stemming from a loss of confidence in the central bank is more challenging to combat than inflation caused by supply disruptions. He stated, “The Fed must maintain its credibility on inflation.”

Conversely, some Fed officials argue that other trends may mitigate the impact of tariffs. Fed governor Stephen Miran noted a steady decline in rental costs, which could help lower underlying inflation in the coming months, while reduced immigration may decrease demand and alleviate inflationary pressures. Miran expressed a more optimistic outlook on inflation compared to others.