NEW YORK — Inflation cooled slightly in February but the outlook for future inflation is still somewhat grim as President Trump’s tariff policies remain in flux.
The Consumer Price Index, a key measure of inflation, rose 0.2% in the last month, down from 0.5% in January, the Labor Department said Wednesday. Since February of last year, prices have risen 2.8%. Rising prices for shelter and food drove up this month’s overall inflation but were offset by decreases in airfare and gas prices.
Although the rate of inflation is down from the previous month, inflation is expected to pick up once the effects of Trump’s tariff policies begin to take hold. The factors that drove down this month’s inflation rate, airfare and gasoline, tend to have volatile price fluctuations, and should not be interpreted as a sign of easing inflation. However, it is heartening that baseline inflation is not worse as the impact of tariffs begins to appear.
Inflation has cooled since its 2022 high of 9%, but progress has stalled in recent months. Even though the numbers improved from January, “the overall picture of inflation is one where it’s still too high,” said Sarah House, Senior Economist at Wells Fargo. “We’re no longer making meaningful inroads the way we were a year or two ago.”
Housing costs rose 0.3% in January, accounting for almost half of the overall inflation rate. Food prices also increased 0.2%. While egg prices increased by 10% this month, overall grocery prices remained unchanged, a welcome relief for consumers. The increase in food prices was driven by an 0.4% increase in the cost of restaurant meals. This category has risen 1.9% over the past year as restaurant owners feel the pain of the higher cost of ingredients and labor.
To keep pace with inflation and maintain their profit margins, Resch’s Bakery, in Columbus, Ohio, has been increasing their prices on their individual baked goods, like cookies, cupcakes, or donuts, by 25 to 50 cents every month or two.
Dave Resch, the general manager, says they receive 10 to 15 customer complaints daily about these price hikes. “A cupcake now is two dollars and fifteen cents,” said Resch. “It used to be a nickel in the 1940s, and those [older] generations come in here and freak out.”
Even though this month’s inflation numbers have cooled somewhat, Resch’s won’t be able to stop their monthly price increases any time soon given the effects of Trump’s tariffs policies.
Since Feb. 1, Trump has implemented, paused and re-implemented 25% tariffs on Mexico and Canada, with exceptions made for goods impacting auto manufacturing and those covered by the USMCA trade agreement. He imposed a 10% tariff on all steel and aluminum, which he later raised to a 25% tariff. He also imposed a 10% tariff on all goods from China, which he then raised to 20%. Furthermore, Trump has announced a plan to implement “reciprocal” tariffs that match the tax rates imposed on US goods by its trading partners.
It’s too early for the effects of these tariffs to show up in the cost of goods, said Richard Moody, Chief Economist at Regions Bank. “The issue is, ‘well, what happens going forward?”
The Federal Reserve, which cuts interest rates to stimulate economic growth when inflation is low and raises rates to slow growth when inflation is high, did not change rates at its last meeting in January. Earlier in the year, economists were hopeful for a potential rate cut at the Fed’s March meeting, but now do not expect any such cuts, despite this month’s lower inflation numbers.
“This inflation print doesn’t matter that much to the Fed,” said Stephanie Roth, Chief Economist at Wolfe Research. “If you forecast based on what might be projected from policy, whether its tariffs and immigration, you should expect inflation to pick up from here.”
China, Canada, and the European Union have imposed retaliatory tariffs on American goods. While tariffs raise the price of goods, trade wars can slow economic growth and lead to job loss.
“The real concern is going to be that the Fed is not going to be able to cut for good reasons,” like cooling inflation, said Roth. “They will likely be cutting later in the year for bad reasons, meaning economic growth is soft.”