The Bureau of Labor Statistics released the February consumer price index (CPI), the first full dataset under President Donald Trump. The findings? It came in better than economists had expected, and early estimates suggest next month's will be even better. Whether the good times will persist throughout 2025 depends on many variables, from crude oil prices to tariffs.
The February CPI Report
Last month, the annual inflation rate slowed to 2.8%, down from 3% in January. This was softer than the consensus forecast of 2.9%. The core CPI report, which omits the volatile energy and food services, also eased to a better-than-expected 3.1%. Supercore inflation, which the Federal Reserve typically observes when it feels like it, dipped below 4% for the first time since late 2023.
Digging deeper into the report reveals that the energy index helped fuel the soft reading. Energy prices rose 0.2%, but gasoline declined 1%. This was driven by the sharp drop in crude oil prices, which have tumbled about 7% this year to around $67 per barrel.
Shelter continued its slow disinflation descent, rising 0.3% monthly. This component, which accounted for half of the monthly 0.2% CPI gain, is up 4.2% on a 12-month basis.
Eggs were a huge factor in the January CPI report. In the February data, they surged more than 10% month over month and are up 59% compared to a year ago. However, this is a lagged indicator because recent US Department of Agriculture (USDA) data suggest eggflation is diminishing. A dozen eggs are now $5.50, down significantly from the recent all-time highs.
That said, there were some concerning numbers, such as the 0.9% increase in used cars and trucks and the 0.6% jump in apparel costs. Overall, it was a decent but not perfect CPI report. In addition, consider this comparison: Former President Joe Biden's last inflation report was annualized at 5.7%. Trump's first one back in office? It was annualized at 2.4%.
Looking ahead, it appears that Trump could be making further progress. The Cleveland Fed's Inflation Nowcasting Model indicates a 2.5% in next month's headline figures, and Truflation, a real-time inflation indicator examining millions of items, points to 1.4% in the coming months. Of course, there is a wild card involved here: tariffs.
Will Inflation Be Tarrified or Tarrific?
Are tariffs inflationary? Economists have been fiercely debating this contentious issue over the last several months. One set of economic observers will say they are inflationary because tariffs are taxes on goods imported by companies that are passed onto consumers. Others purport they are not since the true definition of inflation is the expansion of the money supply rather than when the costs of goods and services become more expensive, which is known as price inflation.
Still, administration officials say there could be a one-time price adjustment in the marketplace should Trump follow through on all his tariff plans. How high these potential changes could be has varied across the economic spectrum, with experts predicting as little as 0.2% to as high as 1.4%. At the same time, like the 2018-2019 tariffs, businesses might be reluctant to pass these higher costs to their customers.
The following 12 months will be crucial for future economic literature. They will determine whether Trump’s tariff plans will exacerbate elevated inflation levels or keep consumer prices in check. If the data heads in a favorable direction, the president might be able to declare a victory in his trade war.
‘Winning’
Of course, unsurprisingly, the White House took a victory lap. Press Secretary Karoline Leavitt called it a "winning" CPI report that was better than the media's predictions and what the "so-called experts" expected. "When will they learn to stop doubting President Trump? As he successfully did in his first term, President Trump is driving down costs through massive deregulation and energy dominance," she said in a statement. "The entire Trump Administration will continue to focus on fixing the economic and inflation nightmare created by the Biden-Harris Administration to unlock the Golden Age of America.”
Investors also cheered on the soft inflation reading, with the blue-chip Dow Jones Industrial Average and the tech-heavy Nasdaq Composite Index rallying about 300 points immediately after the CPI report. The broader S&P 500 also added about 1%. The ebullient attitude following a $2 trillion market rout was caused by expectations that the Fed may have some room to restart its easing cycle should economic conditions rapidly deteriorate.
However, the new administration has already shown that it does not need the US central bank to lower interest rates anymore. Treasury yields have cratered, with the benchmark ten-year shedding about 60 basis points since reaching a mid-January peak. This has made consumer borrowing, from mortgages to auto loans, cheaper. Despite a sea of red ink flooding the New York Stock Exchange, early indicators suggest the United States could be in for a roaring time.
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