US consumer prices rose at the slowest pace in four months in February, offering some reprieve ahead of tariffs that are expected to drive costs higher.
The consumer price index increased 0.2% after a sharp 0.5% advance in January, according to Bureau of Labor Statistics data out Wednesday. Excluding often volatile food and energy categories, the so-called core measure rose 0.2% as well.
The BLS said nearly half of the advance in the overall measure was due to shelter, but it still decelerated from the prior month.
Airfares fell 4%, the most since June, as several carriers warn of weaker demand ahead. Prices of new cars and gasoline also declined. Grocery prices were little changed after a big increase in January, while car and health insurance costs rose at a more moderate pace.
While Wednesday’s report offers some relief, several measures still indicate that inflation is rearing back up again. And with President Donald Trump rolling out a series of tariffs, prices are expected to rise on a variety of goods from food to clothing, testing the resilience of consumers and the broader economy.
In an address to Congress last week, Trump described the higher prices that tariffs are expected to cause as “a little disturbance” the nation ought to be able to overcome. However, the uncertainty around his trade policy has led to a recent meltdown in stock markets and reignited recession fears. Trump sought to downplay those concerns on Tuesday.
See also: Fed’s Powell says still no need to hurry to consider rate moves
The Federal Reserve is patiently sitting in wait-and-see mode until there’s more clarity on the administration’s actions and the inflation trajectory, with officials widely expected to keep rates steady at next week’s meeting. At the same time, growing calls for a downturn have fueled speculation that policymakers may cut rates sooner than previously thought.
US stock futures, Treasury yields and the dollar moved higher after the report.
Some economists had been looking to this report for a first glance at the impact of Trump’s tariffs — which started with levies on all Chinese products last month and has since expanded to certain items from Mexico and Canada — on consumer prices. However, prices of core goods rose only 0.2%, and categories like furnishings, toys and televisions were also tame.
See also: Trump to halt New York City congestion pricing by terminating approval
Shelter prices, the largest category within services, climbed 0.3% after 0.4% in January. Owners’ equivalent rent and rent of primary residence — subsets of shelter — rose by a similar amount.
Excluding housing and energy, services prices advanced 0.2% after rising by the most in a year in the prior month, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index.
That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI, which helps explain why it’s trending closer to the Fed’s 2% target. A government report on producer prices due Thursday will offer insights on additional categories that feed directly into the PCE, which is due later this month.
