2025-03-13
U.S. Core CPI Declines in February, but Tariff Uncertainty May Delay Fed Rate Cuts
The U.S. consumer price index (CPI) increased by 2.8% year-over-year in February (prior: 3.0%), according to U.S. Bureau of Labor Statistics on March 12, marking the end of a four-month consecutive rise. On a monthly basis, CPI rose 0.2% (prior: 0.5%).
The core CPI increased 3.1% year-over-year (prior: 3.3%), the slowest pace since April 2021, with a 0.2% month-over-month increase (prior: 0.4%). All four inflation metrics lower than market expectations.
The decline in CPI was primarily driven by the following factors:
Energy prices moderated to a 0.2% month-over-month increase (prior: 1.1%), with fuel oil prices sharply falling to 0.8% (prior: 6.2%), while gasoline prices declined to -0.9% (prior: 1.8%), reflecting the continued downturn in international crude oil prices.
Food prices rose 0.2% month-over-month (prior: 0.4%), as egg prices, which surged in January, started to cool, increasing by 10.4% (prior: 15.2%).
Core goods prices declined -0.1% (prior: 0.2%), with used car prices easing to 0.9% (prior: 2.2%) and recreational product prices dropping to -0.7% (prior: 0.3%), contributing significantly to the overall decline in core goods inflation.
Core services inflation slowed to 0.3% month-over-month (prior: 0.5%), with housing services prices easing to 0.3% (prior: 0.4%), though still accounting for nearly 50% of the total monthly inflation increase. Additionally, auto insurance prices, which spiked last month, cooled to 0.3% (prior: 2.0%), and airfare prices plunged to -4.0% (prior: 1.2%), becoming the key drivers behind the moderation in core services inflation.
(Source: BLS, TrendForce)
Overall, the decline in inflation not only reflects the dissipation of temporary factors such as severe winter weather, wildfires, and avian flu outbreaks from the prior month, but also the significant drop in airfare and auto insurance prices, which pulled down the overall index.
Notably, rents and owners’ equivalent rent remained stable on a monthly basis, but their annual growth rates further declined to 4.1% (prior: 4.2%) and 4.4% (prior: 4.6%), respectively, indicating that the primary resistance to core inflation continues to fade.
Despite the better-than-expected inflation data, concerns remain regarding the potential impact of tariff-related cost pressures. The February PMI report has already signaled rising input prices due to tariff concerns, suggesting that the latest CPI data may not yet fully reflect the inflationary impact of new tariff policies.
Meanwhile, Truflation (which integrates real-time data from over 30 sources, including Amazon, Walmart, and Zillow, covering over 13 million products) has shown that inflation has further declined to around 1.3%, down from 2.1% at the time of the February CPI release, potentially indicating a sharp slowdown in consumer spending.
Currently, the market expects that due to high uncertainty surrounding the Trump administration’s tariff policies, the Federal Reserve will likely maintain a wait-and-see approach in the short term, with the first rate cut anticipated around June. However, as downside risks to consumer spending and the broader economy become more pronounced, expectations for total rate cuts in 2024 have expanded to over 50 basis points.
Read more at Datatrack