The Blubber

U.S. Consumer Prices Rise Moderately in February Amid Trade War Uncertainty

U.S. consumer prices saw a modest increase in February, with higher housing costs offset by cheaper airline fares, providing the Federal Reserve some breathing room to keep interest rates steady at its upcoming meeting while assessing the broader economic impact of President Trump’s trade war.

However, the relief may be short-lived. The Labor Department’s Consumer Price Index (CPI) report, released Wednesday, does not fully reflect the impact of Trump’s recent tariff hikes, which have pushed up inflation expectations and led economists to revise their inflation forecasts upward.

While last month’s tame inflation reading offered a temporary reprieve, economists expect a different story from one of the Fed’s preferred inflation gauges, depending on February’s producer price data set to be released Thursday.

The stock market has taken a hit in recent days as trade tensions weigh on economic growth prospects.

“Trade wars are expected to raise prices in future inflation reports,” said Chris Low, chief economist at FHN Financial. “The Fed is sidelined now by price uncertainty.”

Breakdown of CPI Data

• Overall CPI rose 0.2% in February, marking the smallest gain since October, following January’s 0.5% increase.
• Shelter costs climbed 0.3%, accounting for nearly half of the CPI’s rise.
• Airline fares fell 4.0%, signaling weaker demand as businesses and consumers cut back on travel spending.
• Gasoline prices dropped 1.0% amid slowing global oil demand.
• Food prices edged up 0.2%, but grocery store prices remained unchanged due to lower costs for fruits, vegetables, dairy, and non-alcoholic beverages.

Egg Prices Continue Upward Surge

Egg prices jumped 10.4% in February, extending a months-long surge driven by an avian flu outbreak that forced mass culling of hens, creating a severe shortage.

• On a year-over-year basis, egg prices surged 58.8%, a key driver of voter frustration over inflation in last year’s presidential election.
• Trump had promised on the campaign trail to bring egg prices down on his first day in office, but the February report—his first full month in office—showed no relief.

Inflation and Trade War Fallout

• Year-over-year CPI rose 2.8% in February, easing slightly from January’s 3.0% increase.
• Economists polled by Reuters had expected 0.3% monthly growth and a 2.9% annual increase.

Earlier this month, Trump escalated trade tensions, raising tariffs on Chinese goods to 20% and slapping a new 25% duty on imports from Canada and Mexico.

• However, he granted a one-month exemption for goods that comply with rules of origin under the U.S.-Mexico-Canada Agreement (USMCA).
• The economic fallout from these tariffs is still unfolding, with higher costs likely to appear in future inflation data.

As the Federal Reserve monitors these developments, the question remains: Will inflation remain contained, or is a bigger spike on the horizon?