Inflation in February slowed more than expected, although the threat of widespread tariffs, especially on goods from China, brings uncertainty about what’s to come in the future.
The Consumer Price Index (CPI) rose 2.8% year-over-year, slightly lower than the 2% target designated by the Fed in comparison to January’s 3% increase. The CPI also rose 0.2% month-over-month, while many economists expected inflation to rise a tenth of a percentage point higher.
February inflation cooled because of falling gas prices and food costs rising more slowly than in recent months. With the impact of Trump 10% tariffs on China and retaliatory tariffs by the EU and Canada on the horizon, upward pressure on the price of goods and services is expected to rise.
“The number was a little bit lower than the markets expected, but I don’t think it means a whole lot, because we really haven’t seen the effect of higher tariffs and retail level inflation data, which is what we expect to happen in the months ahead,” said Richard F. Moody, chief economist at Regions Bank.
Despite egg prices increasing by another 10.4% because of avian flu— meaning that they are now almost 60% higher in price than the same time last year— grocery prices as a whole remained unchanged from the previous month. “That is probably the one thing in the report that surprised me, because you had a three-month run where grocery store prices were up significantly,” said Moody.
It isn’t just consumers who are coping with the impact of bird flu. Businesses like Shady Lanes Farms in Myerstown, Pennsylvania, an egg-processing plant and farm, are feeling grave impacts.
Having lost half of the farm’s birds to avian flu in February, the farm had diminished capability to keep servicing their customers, until a local farmer helped them out and sold them eggs for a cheaper price, according to Gary Zimmerman, the general manager and partner at the processing plant.
“If the farmer hadn’t taken a hit to help us and we had to go with the market, we would have definitely lost customers,” he said.
Regardless, Zimmerman is maintaining a positive outlook. “We’ll lose our production for about six months and then will hopefully be back to business as normal once the flu goes away,” he said.
In the report, gasoline prices declined 1% from the previous month, after rising 1.8% in January and 4% in December.
New vehicle prices were also down .1% from the month before, the first decrease since September 2024. Similarly, airline prices declined by 4% since last year.
Both the new vehicle and airfare indices were a sign of a softening economy with less consumer confidence, according to Mikhail Melnick, an economics professor at Kennesaw State University. “That raises some alarms for me,” he said. “It’s indicative of the fact that consumer demand is weaker than what had been expected.”
Consumer confidence in February declined by 7 points, according to the Conference Board’s Index. And with federal job cuts only beginning to roll out under DOGE, fears of a recession are becoming more pronounced.
Retaliatory tariffs are being threatened by all sides of the coin. By April 2, Trump’s administration said they still plan to follow through with reciprocal tariffs, where “each country will receive a number that we believe represents their tariffs,” according to US Treasury Secretary Scott Bessent. Meanwhile, China recently announced tariffs on US agricultural products, after the U.S. raised tariff prices on China by 10%, expected to impact electronics and clothing.
Tumultuous tariff policy uncertainty caused the Dow Jones to drop 900 points after Trump refused to rule out a recession, but regardless, this month’s inflation report seemed to put the pep back into Wall Street’s step. The Nasdaq rose 1.2%, the S&P 500 gained 27.23 points, though the Dow Jones fell 0.2%, according to MarketWatch.
But Professor Melnick says it’s too early for Wall Street to celebrate. “I’m not going to buy a new car if I expect to lose my job, right? I probably won’t go on vacation if I expect to lose my job, right?” he said.
Either way, the White House has already declared victory because of Wednesday’s CPI release. “WINNING: Inflation Eases as Job Creation Soars and Border Security Pays Off,” a press briefing reads.
Meanwhile, the Fed has given President Trump no indication that they will change monetary policy anytime soon in favor of cutting interest rates. “We do not need to be in a hurry, and are well positioned to wait for greater clarity,” said Jerome Powell last week at a monetary policy forum in New York.
