Investing.com - U.S. consumer prices rose at a slower-than-anticipated pace in February, according to government data on Wednesday that will likely be closely monitored by Federal Reserve officials wary of the potential impact of President Donald Trump’s policies on inflation.
The headline consumer price index (CPI), a key measure of inflation in the world’s largest economy, came in at 2.8% in the twelve months to February, cooling from 3.0% in January. Month-on-month, the gauge eased to 0.2% from 0.5%, figures from the Labor Department showed.
Economists had predicted readings of 2.9% and 0.3%, respectively.
Shelter costs accounted for nearly half of the monthly uptick and were partially offset by a 4% decline in airline fares and 1% drop in gasoline prices, the Labor Department’s Bureau of Labor Statistics said. A jump in egg prices, which have surged due to bird flu-linked shortages in hens, was also counterbalanced by easing costs in other categories like dairy and fruits and vegetables.
Stripping out volatile items like food and fuel, so-called "core" CPI was 3.1% year-over-year and 0.2% on a monthly basis. Both of these decelerated from the prior month and were below estimates.
The numbers will be among the last the Fed receives before its next policy gathering on March 18-19. The central bank pushed pause on an easing cycle at its last meeting in January and indicated that it will take a wait-and-see approach to further rate cuts, partly citing uncertainty around the inflationary impact of Trump’s plans for tariffs and immigration.
Economists have predicted that the levies in particular, which Trump has threatened to impose on friends and adversaries alike, could drive up prices and weigh on broader growth.
This week, analysts at Goldman Sachs slashed their U.S. growth forecast to 1.7% and raised their outlook for price gains, while J.P. Morgan’s Chief Economist told reporters that the probability of the U.S. economy sliding into a recession this year stands at 40%.
Such a scenario -- faltering economic activity combined with stubborn inflation -- could present a dilemma for Fed officials torn between supporting the labor market or stemming price increases. Prior to the CPI release, Fed funds futures suggested that the Fed could roll out three 25-basis-point cuts through December, according to LSEG data cited by Reuters.
Still, the Fed is tipped to leave borrowing costs unchanged at a range of 4.25% to 4.5% at its meeting next week. On Friday, Fed Chair Jerome Powell said the U.S. economy "continues to be in a good place," citing an ongoing -- albeit bumpy -- fall in inflation and expansion in the labor market. Powell noted that a "solid" 191,000 jobs have been added on average since September.
"While the CPI rose less than anticipated, [...] momentum is still on the upside. With the potential for tariffs lifting food and clothing prices, the Fed is likely to remain on hold," said Kathy Jones, Chief Fixed Income Strategist at Charles Schwab (NYSE:SCHW), in a post on X.