U.S. inflation slowed last month for the first time since September and a measure of underlying inflation fell to a four-year low, even as widespread tariffs threaten to send prices higher.
The consumer price index increased 2.8% in February from a year ago, Wednesday’s report from the Labor Department showed, down from 3% the previous month. Core prices, which exclude the volatile food and energy categories, rose 3.1% from a year earlier, down from 3.3% in January. The core figure is the lowest since April 2021.
The declines were larger than economists expected, according to a survey by data provider FactSet. Yet they remain higher than the Federal Reserve’s 2% target. And most economists still expect inflation will remain elevated this year as Trump’s tariffs kick in.
“Today’s cooler-than-expected reading was a breath of fresh air,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said. Yet she cautioned that the Fed is likely to keep its key rate unchanged for now until it sees further evidence of how the White House’s trade and immigration policies affect the economy.
On a monthly basis, inflation also came in much lower than expected. Consumer prices rose 0.2% in February from the previous month, down from a big 0.5% jump in January. And core prices rose just 0.2%, below the 0.4% increase in January. Economists watch core prices because they are typically a better guide to inflation’s future path.
A sharp drop in air fares, which fell 4% just in February from the previous month, helped bring down overall inflation. Rental price increases also slowed. And the price of new cars fell last month compared with January.
Groceries flat, but eggs pricier
Grocery prices were unchanged last month from January, bringing some relief to consumers grappling with a 25% jump in grocery prices from four years ago.
The cost of eggs, however, jumped 10.4% in February from the previous month and is nearly 60% higher expensive than a year ago.
Avian flu has forced farmers to slaughter more than 160 million birds, including 30 million in January. Average egg prices hit $5.90 a dozen nationwide in February, a record high. The price had consistently been below $2 a dozen for decades before the disease struck.
And with Trump imposing — or threatening to impose — a wide range of tariffs on imports from Canada, Mexico, China, Europe and India, most economists forecast price growth will likely remain elevated this year.
The duties have roiled financial markets and could sharply slow the economy, with some analysts raising the odds of a recession. Many economists expect inflation would fall this year without the import taxes, but with tariffs imposed, they forecast inflation will stay elevated through the end of this year.
Trump has pledged to impose reciprocal tariffs on any country with duties on U.S. exports on April 2. Economists at the Yale Budget Lab calculate that those duties, by themselves, could boost the average U.S. tariff rate to its highest level since 1937, and cost the average household as much as $3,400.
Wednesday’s update is likely to encourage the inflation-fighters at the Federal Reserve. Fed Chair Jerome Powell said in January that rate cuts were on hold and another reduction is highly unlikely at the Fed’s meeting next week.
The biggest wild card for the Fed — and the economy as a whole — are the tariffs and Trump’s threats to impose more. Since his inauguration in January, Trump has imposed 20% taxes on all imports from China, and 25% duties on imports from Canada and Mexico, though most of those tariffs have been suspended for a month.
On Wednesday, the administration increased tariffs on all steel and aluminum imports to 25%, promising that the taxes would help create U.S. factory jobs at a time when Trump’s seesawing tariff threats are jolting the stock market and raising fears of an economic slowdown.
The European Union responded in kind almost immediately announcing retaliatory trade action with new duties on U.S. industrial and farm products.
Trump has promised reciprocal duties on countries that tariff exports from the United States, including Europe, India, and South Korea on April 2.
____
AP Writers Josh Boak and Paul Wiseman in Washington, and Lorne Cook and David McHugh in Europe, contributed to this report.
