US inflation slowed in February for the first time since September, with core inflation dropping to a four-year low. However, newly imposed tariffs by President Donald Trump could reignite price pressures, economists warn.
Inflation Decline Offers Temporary Relief
The consumer price index (CPI) rose 2.8% in February from a year ago, down from January’s 3% increase, according to the Labor Department. Core prices, excluding food and energy, rose 3.1% from a year earlier, the lowest since April 2021. Both figures came in below economists’ expectations.
On a monthly basis, CPI increased just 0.2% in February, down from 0.5% in January. Core prices also rose by 0.2%, compared to 0.4% the previous month.
Key Contributors to Inflation Drop
- Airfares fell 4% in February.
- Rental price increases slowed.
- Hotel and car insurance costs rose at a lower pace.
- New car prices declined compared to January.
- Grocery prices remained unchanged.
However, egg prices surged 10.4% in February due to an avian flu outbreak, making them nearly 60% more expensive than a year ago. Average egg prices hit a record high of $5.90 per dozen.
Tariffs Could Reverse Inflation Gains
Despite cooling inflation, Trump’s tariffs could push prices higher. On Wednesday, Trump imposed sweeping 25% tariffs on all steel and aluminum imports. These duties are expected to raise costs for vehicles, appliances, and electronics.
The European Union and Canada retaliated with new tariffs on US exports, with Canada planning $21 billion in duties. Additional reciprocal tariffs are set for April 2, which could push the average US tariff rate to its highest level since 1937, costing households up to $3,400 annually.
Businesses Brace for Higher Costs
Small businesses and major retailers are already preparing for the impact:
- Walmart CFO John David Rainey: Warned of price hikes in some product categories.
- Target CEO Brian Cornell: Predicted rising produce prices, especially Mexican avocados.
- Best Buy CEO Corie Barry: Expected higher supplier prices, with China and Mexico as key sources.
- Toy Industry: Prices for games, dolls, and cars may rise 15%-20% due to China tariffs.
“We’re going to have to pass along (the cost) to the consumer,” said Ethan Frisch, co-CEO of Burlap & Barrel. “It’s going to make the product more expensive, which will slow down sales.”
Outlook for Inflation and the Economy
While February’s inflation report provided temporary relief, the long-term impact of tariffs remains uncertain. With price increases expected across multiple industries, economists predict inflation will remain elevated throughout 2025.
