US Inflation Eases in February as Tariff Concerns Loom
February's US inflation figures came in below expectations, offering a welcome reprieve to consumers and businesses concerned about rising costs amid President Trump's escalating trade war.
US CPI eased to 0.2%mom for both the headline and core prints (previously at 0.5% and 0.4%, respectively). The annual inflation rates also came in softer at 2.8% and 3.1%, from 3.0% and 3.3%, respectively; the core printed its lowest level since April 2021.
Housing costs, whilst moderating to a 0.3% increase, still accounted for approximately half of February's price rises. Food and energy indices both climbed 0.2%, with egg prices surging 10.4% for the month, pushing the yearly increase to a staggering 58.8%.
The inflation report comes at a critical juncture for the US economy, with markets showing significant volatility as the Trump administration implements new tariffs. The Dow Jones Industrial Average has declined 6% over the past month, and the Atlanta Fed's economic tracker suggests the first quarter may see negative growth, currently estimated at -2.4%.
Given this report excludes any impact from tariffs, we remain cognisant of the potential effects of Trump's recently implemented 25% duties on steel and aluminium, and the 20% levies on Chinese imports on future inflation reports.
Fed Chair Powell echoed this sentiment last week stressing that: “Inflation can be volatile month-to-month, and we do not overreact to one or two readings that are higher or lower than anticipated." The Fed, set to meet next week, is expected to maintain interest rates between 4.25%-4.50%, though markets anticipate rate cuts beginning in June if inflation continues to moderate, with currently more than 50bps of cuts priced in for this year, in-line with the Fed’s latest median projections.
Later today the PPI figures will set the scene for February’s PCE data, favoured by the Fed. Currently, expectations are for the final demand reading to fall to 0.3%mom and 3.3%yoy. Of particular importance is the PPI excluding trade, transportation, and warehousing, as it directly feeds into the PCE calculation. This measure declined to 4.1%yoy in January - its lowest level since February 2024.
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