Inflation cooled slightly in February, offering a reprieve from the previous month’s increases even as the effects of tariffs continue to worry Wall Street and Main Street alike.
Consumer prices ticked up 2.8% year-over-year, the Bureau of Labor Statistics reported Wednesday, a slowdown from January’s unexpected 3% jump. Month-on-month prices rose 0.2%, a significant drop from January.
The numbers are promising for those seeking signs of easing inflation. But some experts fear that it could be a feint, with the effects of Trump’s tariffs sitting just beyond the horizon. Most mainstream economists view tariffs as inflationary as they push up prices by passing on import costs to consumers.
“It’s encouraging and a relief that we saw a slower increase in inflation in February than most were expecting,” said Kathleen Bostjancic, chief economist at Nationwide Mutual. “However, I would say that this is old news because really what the market is focused on is what potential changes in tariffs will have on inflation going forward.”
The changes from January are a mixed bag. Rental inflation increased moderately, moving up .3% from last month. Consumers also found themselves paying more for energy, with electricity and utility gas increasing 1% and 2.5% respectively. Egg prices, a particular source of pain for consumers and restaurants alike, increased 10.4%, a slowdown from January’s spike but no doubt painful for
But these increases were offset to some extent by drops in other areas. Gasoline prices fell 1%, the first drop in gasoline prices since October 2024. Airline prices also fell steeply this month, dipping 4% from January.
Looming over everything is President Trump’s mercurial decisions on tariffs. Since taking office, Trump has repeatedly threatened, delayed, and imposed tariffs on a range of countries, including some of America’s biggest trading partners.
“You hear different tariff threats from the President, depending on the day,” said Jonathan Millar, senior economist at Barclays Capital. This is different from Trump’s first term, he said, as this time the tariffs have targeted a wide range of countries rather than just China, creating an uncertain future.
“No one knows what it will eventually deliver,” he said.
Recently, Trump administration officials have tried to downplay concerns. In a talk last week at the New York Economic Club, Treasury Secretary Scott Bessentt described tariffs as a “one time price adjustment”, adding that he believes any cost increases will be “transitory”.
“Across the continuum, I’m not worried about inflation,” he said.
Wednesday’s report comes amid other signs that inflation fears are weighing on the economy. The latest Consumer Sentiment Index report on Friday showed increasing consumer pessimism about the economy, with the index down 22% since December. Markets have also reacted negatively, with the S&P 500 down more than 5% for the year and down 10% from its Feb. 19 high.
Higher costs are already pinching some businesses, particularly bakeries and restaurants that rely on eggs. At Spring Hill Pastry Shop in South Charleston, WV, owner Chris Williams has seen costs for bulk containers of eggs jump three or even five-fold recently. Still, she considers herself fortunate. Her store has been around for more than 70 years, so she’s able to take the long view and absorb the economic blows more than others.
“It’s affecting our profits, but we’re not passing it on to our customers,” she said. “Hopefully it won’t be forever.”
The questions about tariffs will likely complicate the Federal Reserve’s efforts to lower interest rates. Even if growth slows and inflation drops, the Fed may be hesitant to cut rates too soon for fear that tariffs could impact the economy.
“They’re going to be in a wait-and-see mode for some time,” said Bostjancic. “They have to assess not just the inflation picture for the next few months but also the growth picture.”