The Consumer Price Index (CPI) report for December 2025 has been released, and although it may appear uneventful on the surface, it confirms the broader trend. Headline CPI rose 0.3% last month and 2.7% year-over-year, matching November’s pace and forecasts. Core inflation, excluding food and energy, rose 2.6% on an annual basis. The reality is that the Federal Reserve’s 2% target has not been attainable.
Price pressures have remained persistent since 2020. The basic necessities for survival continually increase. Shelter accounts for over one-third of CPI and is up 3.2% on the yearly and 0.4% monthly. Food prices are up 0.7% monthly and 2.6% annually, with energy coming in at 0.3% and 2.3% respectively.
Every time inflation rises, the same two culprits are dragged out by the press and politicians: tariffs and the Federal Reserve. Prices rise, and immediately we are told tariffs are “taxes on consumers” or that the Fed “printed too much money.” Both explanations are simplistic, politically convenient, and fundamentally wrong.
Tariffs have not caused food and shelter to continually rise. Inflation is born on the fiscal side of government, not the monetary side. This is the critical distinction that most economists either do not understand or deliberately ignore.
The Federal Reserve does not create inflation. It creates debt instruments. When the Fed expands its balance sheet, it is not dropping money out of a helicopter into the hands of the public. The Fed is merely swapping one asset for another. Inflation emerges when the government, the largest borrower, spends beyond its productive capacity.
Printing money without spending it does nothing. Borrowing money without spending it does nothing. Inflation occurs only when government deficits are monetized through fiscal policy, where money is injected into the economy to cover political promises, wars, social programs, and bailouts. This is why inflation exploded after 2020 when governments worldwide unleashed trillions in direct spending while halting productive output to zero.
The Federal Reserve reacts to inflation, but it does not create it. Trump is wrong for demonizing Powell and attempting to pin criminal charges on him. Removing the Fed chairman will not somehow tame inflation or reduce it by a single basis point. If anything, arresting the head of the central bank would only further erode confidence. The FOMC could drop rates into the negatives but it would not erase the trillions in deficits or offset reckless spending.
