Inflation Ticked Down Faster Than Expected Ahead Of Tariff Turmoil

A key inflation measure simmered down in February, the month before a round of President Donald Trump’s wide-ranging tariffs kicked in and potentially pushed up the cost of living.

The Consumer Price Index, a measure of the cost of living, rose 2.8% over the 12 months leading up to February, down from a 3% annual increase in January, the Bureau of Labor Statistics said Wednesday. “Core” inflation, which excludes volatile prices for food and energy, fell to a 3.1% annual increase from 3.3%. Both were 0.1 percentage points lower than forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

After the downtick, inflation was still running well over the Federal Reserve’s 2% annual goal, but headed in the right direction. However, President Donald Trump’s tariffs against major U.S. trading partners took effect in March, with the countries targeted and the levels of the tariffs rapidly and unpredictably changing. Economists have forecast the tariffs will push up prices for a wide range of products depending on how much of the import tax increases Trump has threatened are actually implemented.

Amid all the uncertainty, Fed officials have indicated they’re reluctant to make any big moves, such as cutting the central bank’s benchmark interest rate. The Fed has held the key fed funds rate at a higher-than-usual level, putting upward pressure on borrowing costs for all kinds of loans to discourage borrowing, slow the economy, and quell inflation.

Wednesday’s report showed prices are still accelerating faster than people were used to before the pandemic, continuing to squeeze household budgets. However, a few important items got cheaper, pushing the overall inflation rate down. Gasoline fell 1% from the month prior, and airfares fell 4% over the month. At the grocery store, pork, milk, and many fruits and vegetables got cheaper, offsetting a 10.4% monthly spike in the price of eggs.