US inflation cooled in February, but Trump’s tariff plans and trade war loom

By Alicia Wallace, CNN

(CNN) — Inflation slowed more than expected in February and cooled for the first time in four months, but that progress may be short lived as President Donald Trump ramps up his trade war, which threatens to increase prices for Americans.

The Consumer Price Index, which measures price changes across commonly purchased goods and services, was 2.8% for the 12 months ended in February, a cooldown from the 3% annual rate notched in January, according to data from the Bureau of Labor Statistics released Wednesday. On a monthly basis, prices rose 0.2%, versus 0.5% in January.

Economists were expecting inflation to slow for the month amid falling gas prices and continued disinflation in housing-related costs. FactSet consensus estimates called for prices to rise 0.3% from January and 2.9% annually.

US stocks rallied Wednesday after the report was released, bouncing back after three weeks of declines. The Dow gained 140 points, or 0.3%, the S&P 500 rose by 1.1% and the Nasdaq Composite was 1.9% higher.

February’s inflation numbers came in better than expected thanks in part to two big — and very welcome — reasons: Grocery prices were flat for the month and gas prices fell.

Egg inflation slows

Consumers got some relief on the egg front as well.

Egg prices, which have soared because an ongoing bout of avian flu is ravaging the industry, rose 10.4% for the month, a cooler reading than the 15.2% increase logged in January. Still, egg prices remain high, up 58.8% from a year ago.

The US Department of Agriculture last week noted that negotiated wholesale prices for eggs “declined sharply” as outbreaks have slowed, providing some breathing room for unaffected producers to fill gaps in supply. The USDA noted that demand declined as well.

Food and fuel are two of the most frequent ways that consumers encounter inflation, and those prices can fluctuate wildly on a month-by-month basis. That’s due to factors such as weather, war, disease, supply chain snarls, spikes in demand or other temporary shocks.

Because of that, those categories are excluded in “core” measurements meant to provide a sense of how underlying inflation is faring.

February’s core CPI came in better than expected as well, rising 0.2% for the month (from 0.4% in January) and slowing to 3.1% annually from 3.2%.

“Familiar problem areas,” such as high, but slowing, housing-related inflation, continue to exert pressure on household budgets, noted Greg McBride, chief financial analyst at Bankrate.

“Shelter costs are increasing at the slowest pace in more than 3 years but are still ahead of the increase in average hourly earnings over the past year,” he wrote in commentary Wednesday. “Motor vehicle insurance and repair, electricity, and natural gas continued to increase at an outsized pace in February. And egg prices are in a league of their own.”

Calm before the storm

However, McBride, other analysts and economists on Wednesday expressed caution that the friendly February print may very well be the calm before the storm.

“Good news on the inflation fronts in February, but a cloud cover is on the horizon,” Sung Won Sohn, professor of finance and economics at Loyola Marymount University and chief economist at SS Economics, wrote Wednesday. “Looking ahead, the inflation landscape has become increasingly uncertain as various economic factors begin to take effect. One of the key contributors is the impact of tariffs, which have started to influence consumer prices.”

A 10% tariff imposed on Chinese goods went into effect in February, and some retailers likely raised prices preemptively, Sohn noted.

The steel and aluminum tariffs as well as additional tariffs levied on Canada and Mexico are expected to drive up the prices of new and used vehicles. The impact is likely to be more pronounced in the March CPI data, Sohn noted.

Food prices are also under pressure, he added.

“Consumers should prepare for significant increases in the cost of essential groceries, including eggs, baked goods and other groceries,” Sohn said. “Supply constraints, coupled with additional costs from tariffs, will push food prices higher and are expected to continue doing so in the coming months.”

This story is developing and will be updated.

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