Inflation was tamer than expected in February, with the consumer price index (CPI), a leading measure of prices in the U.S., rising a seasonally adjusted 0.2% for the month. The annual inflation rate for the past 12 months was 2.8%, according to the U.S. Bureau of Labor Statistics.
Excluding food and energy, the core CPI increased 0.2% month over month, down from January’s core CPI reading of 0.4%, and 3.1% year over year. The consensus estimates for February inflation had been 0.3% and 3.2% for the past year.
The news was a pleasant surprise after January’s hot overall inflation reading, which ignited worries of a new round of rising prices derailing some or all of this year’s reductions in interest rates by the Federal Reserve. The 2.8% annual rate is nearing the Fed’s preferred 2.0% annual rate of inflation.
The cost of housing rose 0.3% in February, accounting for nearly half of the monthly all-items increase. Overall housing costs were up 4.2% for the past 12 months.
The shelter category increase was partially offset by a 4.0% decrease in the cost of airline fares and a 1.0% decrease in the cost of gasoline. Despite the decrease in gas prices, overall energy costs still rose 0.2% over the month as electricity and natural gas climbed in price.
The food index also rose by 0.2% for the month, another pleasant surprise, considering that food costs rose 0.4% in January. The cost of food at home was unchanged, as grocery store food generally was cheaper, including fruits, vegetables and dairy products. Eggs were still a problem, rising 10.4% for the month, helping to push up the general cost of the meats, poultry, fish and eggs category by 1.6%.
First American Senior Economist Sam Williamson said in a statement that the CPI report offered encouraging signs as many categories showed small downside surprises in pricing. While the modest improvements were probably not enough to prompt a March interest rate cut from the Federal Reserve, they may give the Fed greater flexibility to consider more rate cuts later in the year. Also, he cautioned that the impact of proposed tariffs was not yet being felt in the economy.
“Many categories made encouraging disinflation progress last month, including food, energy, and shelter,” Williamson said. “Prices for new vehicles and airline fares actually decreased month over month. However, the impact of new tariffs likely hasn’t materialized yet, leaving uncertainty around inflation as we approach spring, supporting the Fed’s cautious approach in the coming months.”
