Jason Reed, University of Notre Dame

Inflation figures released on Feb. 12, 2025, will come as a disappointment to Americans who hoped President Donald Trump would be true to his word on bringing down prices “on Day One.” It will also put pressure on the new administration to be wary of policies that may heat up inflation – and that includes tariffs.

The consumer price index, which measures the change in prices paid by consumers for a representative basket of goods and services, rose unexpectedly from December to January by 0.5%. It means consumers are paying around 3% more on item prices than they were a year ago.

Economists had been expecting the pace of inflation to slow in January.

The news isn’t good for anyone concerned. It means inflation remains above the Federal Reserve’s long-run target of 2% – making it harder for the central bank to cut rates at its next meeting on March 19. At its last meeting, the rate-setting Federal Open Market Committee kept its benchmark federal funds rate unchanged at a range of 4.25-4.50%.

Following the release of the latest inflation data, markets have a stronger conviction that the Fed will again hold rates steady when it meets in March.

It also means more pain for consumers. Higher interest rates set by the Fed play a large role in determining rates for mortgages, credit cards and auto loans. If January’s rate of inflation were to continue throughout 2025, consumers would see a painful 6.2% annualized inflation rate.

And although it would be churlish to link the latest jump in inflation to an administration just weeks old, it does put into focus the current slate of Trump economic policies. Economists have long warned that imposing tariffs on imports and cutting taxes does little to curb inflation – rather, they may contribute to faster price increases.

Already, China has been hit by a 10% tariff on all products. Trump has also proposed a 25% tariff on all steel and aluminum imports, and he mulled imposing new tariffs on Canada and Mexico – two of the United States’ largest trading partners.

I believe that if these wide-ranging tariffs come into effect, the Federal Reserve will have no choice but to keep rates elevated for the remainder of 2025.

Revving up for higher car costs

One of the largest drivers of inflation in January was rent increases, which accounted for nearly 30% of all items increase. Rents jumped 4.6% from a year earlier.

If Trump’s tariffs on Canadian imports, like lumber, take effect, Americans can expect continued price increases in the homebuilding sector. Supply and demand imbalances remain a key driver for higher prices, so fewer houses being built due to higher materials cost will likely lead to higher rents.

Consumers saw better news on new vehicle prices, which remained flat over the month and showed slight declines from a year ago.

This is even as demand for new cars increased 2.5% over 2024. In January 2025, the number of new vehicles sold topped the same month a year earlier for the fifth month in a row.

But as with homebuilding, any tariffs on the import of car parts or materials will impact the auto industry. Carmakers may have breathed an immediate breath of relief when Trump delayed new tariffs on Canada and Mexico. But if deals aren’t reached by the March 1 deadline, industry analysts expect immediate impacts on top sellers.

And any higher cost of new cars will have a knock-on effect on used cars, which saw prices jump 2.2% in January – it’s largest increase since May 2023.

Increased prices are no yoke! (groan)

Of course, not all inflationary pressures are in the purview of government.

The transportation sector, which includes insurance and parking fees, increased by 8% over the year. Insurance prices soared almost 12%, on the back of last year’s 20.6% increase in prices, while parking fees increased by almost 5% as a result of more expensive repairs and more dangerous driving behaviors.

Meanwhile, with bird flu continuing to spread, egg prices rose a shocking 15.2% in January, and are 53% more expensive than at this time last year.

All in all, voters who cited inflation as the main reason they were backing Trump may be feeling a little uneasy – the administration is only a few weeks old, but for one reason or other, Americans are experiencing ever higher prices with little relief in sight.

Jason Reed, Associate Teaching Professor of Finance, University of Notre Dame

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Aliasger K. Salem, University of Iowa

Biomedical research in the U.S. is world-class in part because of a long-standing partnership between universities and the federal government.

On Feb. 7, 2025, the U.S. National Institutes of Health issued a policy that could weaken the position of the United States as a global leader in scientific innovation by slashing funds to the infrastructure that allows universities and other institutions to conduct research in the first place.

Universities across the nation carry out research on behalf of the federal government. Central to this partnership is federal grant funding, which is awarded through a rigorous review process. These grants are the lifeblood of biomedical research in the U.S.

When you think of the costs of scientific research, you might picture the people who conduct the research, and the materials and lab equipment they use. But these don’t encompass all the essential components of research. Every scientific and medical breakthrough also depends on laboratory facilities; heating, air conditioning, ventilation and electricity; and personnel to ensure research is conducted securely and in accordance with federal regulations.

These critical indirect costs of research are both substantial and unavoidable, not least because it can be very expensive to build, maintain and equip space to conduct research at the frontiers of knowledge. The NIH stated that it spent more than US$35 billion on grants in the 2023 fiscal year, which went to more than 300,000 researchers at more than 2,500 universities, medical schools and other kinds of research institutions across the nation. Approximately $9 billion of this funding was allocated to indirect costs.

NIH grants have supported the direct costs of my own scientific research on developing treatments for conditions ranging from cancer to eye diseases. I would be unable to carry out my research without the support of the indirect costs the NIH plans to cut.

What are indirect costs?

Indirect costs, also known as facilities and administration costs, or overhead, are funds provided to institutions to cover expenses that are not directly tied to specific research projects but are essential for their execution. Unlike direct costs, which cover salaries, supplies and experiments, indirect costs support the overall research environment, ensuring that scientists have the necessary resources to conduct their work effectively.

Indirect costs include maintaining optimal laboratory spaces, specialized facilities providing services like imaging and gene analysis, high-speed computing, research security, patient and personnel safety, hazardous waste disposal, utilities, equipment maintenance, administrative support, regulatory compliance, information technology services, and maintenance staff to clean and supply labs and facilities.

Research institutions that receive federal grants must comply with the rules and regulations established by the U.S. Office of Management and Budget. These guidelines dictate the indirect cost rates of each institution.

Institutions submit proposals to federal agencies that outline the costs associated with maintaining research infrastructure. The cost allocation division of the Department of Health and Human Services reviews these proposals to ensure compliance with federal policies.

Indirect rates can range from 15% to 70%, with the specific level depending on the research and infrastructure needs of an institution.

Typically, institutions undergo an exacting process to renegotiate their indirect rates every four years, factoring in components such as general, departmental and program administration, building and equipment depreciation, interest, operations and maintenance, and library expenses. Universities need to carefully justify these cost components to ensure the sustainability of research infrastructure and compliance with federal requirements.

Notably, indirect costs from grants do not cover the full cost of carrying out research at universities. In 2023, colleges and universities contributed approximately $27 billion of their own funding, such as money from their endowments, to support research. This included $6.8 billion in indirect costs that the federal government did not reimburse.

Slashing vital research funding

In its February announcement, the National Institutes of Health declared that it would no longer determine indirect costs rates based on the needs of each institution. Instead, it would issue a standard indirect cost rate of 15% across all grants. The rationale given by the agency for the cap is to “ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead.”

It notably comes after the Trump administration and Elon Musk have sought to slash federal spending, with Musk criticizing indirect cost rates as “a ripoff.”

A standard 15% rate would significantly affect an institution’s ability to maintain its research infrastructure. For example, if a university had a 50% indirect cost rate in 2024, it would receive $150,000 for a $100,000 grant, with $50,000 allocated to indirect costs. With the new NIH cap, this would drop to $115,000, with only $15,000 for indirect costs.

The scale of this cut in research support becomes apparent at the state level, with harms to both red and blue states. For example, Texas institutions would face a reduction of over $310 million, and institutions in Iowa a reduction of nearly $37 million. California would lose more than $800 million, and Washington over $178 million.

The NIH compared the new 15% cap to the indirect cost rates that foundations typically set for institutions of higher education. It pointed to the 10% rate granted by the Bill & Melinda Gates Foundation and Smith Richardson Foundation, the 12% rate of the Gordon and Betty Moore Foundation and Robert Wood Johnson Foundation, and the 15% rate of the Carnegie Corporation of New York, Chan Zuckerberg Initiative, John Templeton Foundation, Packard Foundation, and Rockefeller Foundation.

However, many researchers and funders have criticized this claim as misleading. A spokesperson for the Gates Foundation has previously stated that the listed rate does not reflect how the organization allocates its funds. Universities have pointed out that they often accept foundation grants with low or zero overhead rates because these grants constitute a relatively small portion of their funding and are often spent on early-stage faculty whose careers need additional support.

In addition, it is only because NIH grants cover a significant portion of their overhead costs that research institutions are able to accept foundation grants with such low indirect rates.

Biomedical researchers respond

Scientists and researchers responded to the NIH announcement with deep concern about the negative effects these funding cuts would have on biomedical research in the United States.

The Council on Governmental Relations, which monitors federal policy for major universities and medical research centers, stated that “America’s competitors will relish this self-inflicted wound,” urging the NIH to “rescind this dangerous policy before its harms are felt by Americans.”

The president and CEO of the Association of American Medical Colleges stated that the NIH policy would “diminish the nation’s research capacity, slowing scientific progress and depriving patients, families, and communities across the country of new treatments, diagnostics and preventative interventions.”

Research institutions, scientific societies, advocacy groups and lawmakers from both major political parties have pushed back against the 15% cap on indirect costs, urging NIH leadership to reconsider its policy.

Soon after the attorneys general of 22 states filed lawsuits challenging the policy, a federal judge issued a temporary pause in those states until lifted by the court.

Scientists expect the long-term effects of these funding cuts to significantly damage U.S. biomedical research. As the debate over federal support to academic research institutions unfolds, how institutions adapt and whether the NIH reconsiders its approach will determine the future of scientific research in the United States.

Aliasger K. Salem, Bighley Chair and Professor of Pharmaceutical Sciences, University of Iowa

This article is republished from The Conversation under a Creative Commons license. Read the original article.