Price growth cooled faster than expected in February

Price growth cooled faster than expected in February — a welcome sign for markets that have become spooked by the specter of persistent inflation.

The consumer price index rose 2.8% in February from the year before, less than forecast and slower than the 3% annual rate in January, the Bureau of Labor Statistics reported Wednesday.

Price growth climbed 0.2% from January to February, down from January’s 0.4% monthly rate and beating expectations of 0.3%. The decline was led by a sharp decrease in airfares, which fell 4%, and new vehicle prices, down a modest 0.1%. Housing costs saw the smallest 12-month increase since December 2021, up rising 4.2%.

Stock futures initially surged on the report, then retreated.

President Donald Trump’s expanding tariff agenda adds a wild card into the mix. On Wednesday, his threatened tariffs on steel and aluminum imports took effect, causing the European Union to retaliate with tariffs on $28 billion of U.S. goods including boats, motorbikes and alcohol.

While Trump entered office promising to reduce prices “immediately,” most mainstream economists say that goal conflicts with his trade policies. The president’s back-and-forth tariff announcements have caused a wave of uncertainty throughout the U.S. economy, upending spending plans of consumers and businesses alike.

“We have massive cross-currents,” Mark Zandi, chief economist at Moody’s analytics, said ahead of the CPI release. “We have tariffs that will add to inflation but then a weaker economy that is detracting. My sense is that we’re not going to see further progress toward the [Federal Reserve’s] 2% inflation goal in the near future.”

“The only reason why we would go back to that target is if the economy really gets nailed here and stalls out — you don’t even need a recession,” Zandi predicted. “Inflation could come in, but it would be for the wrong reasons, because the economy is falling apart.”

Nearly a third of small businesses are raising prices, the National Federation of Small Businesses found in a survey released Tuesday. That share rose 10 percentage points since January, the biggest one-month jump since April 2021 and the third highest on record. The share of those lowering prices, meanwhile, is about 10 points lower than a year ago.

“Inflation remains a major problem, ranked second behind the top problem, labor quality,” NFIB Chief Economist Bill Dunkelberg said in the release.

Consumers’ expectations for inflation are ticking up slightly, at least in the near-term, just as their personal financial outlooks deteriorate, a separate monthly survey released this week by the New York Federal Reserve found.