(NewsNation) — Inflation slowed during President Donald Trump’s first full month in office, but that progress could be short-lived as tariffs threaten to raise prices in the months ahead.
The consumer price index increased 2.8% in February from a year ago, the first slowdown in the annual inflation rate since September, according to new data from the Labor Department.
Core inflation, which excludes the volatile food and energy categories, fell to 3.1% year-over-year, the lowest since April 2021.
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February’s inflation report was better than expected, but it doesn’t tell us much about where prices are heading given the uncertainty around Trump’s trade war.
“The widespread imposition of tariffs represents upside risks to inflation in the months ahead,” Greg McBride, Bankrate’s chief financial analyst, said in a statement.
Lydia Boussour, senior economist at the tax and consulting firm EY, also expects speed bumps going forward.
“Tariffs, confusion around trade policy and tighter immigration policy mean the risks to inflation are tilted to the upside,” Boussour wrote in an analysis.
Here are the prices that rose and fell in February.
What costs more?
Eggs:
From a year ago: +58.8%
From a month ago: +10.4%
Tickets to sporting events:
From a year ago: +12.0%
From a month ago: +7.2%
Coffee:
From a year ago: +6.0%
From a month ago: +1.8%
Shelter:
From a year ago: +4.2%
From a month ago: +0.3%
Egg prices hit a new record high in February, rising 10.4% from the previous month to $5.90 for a dozen large Grade A eggs. Compared to a year ago, egg prices are up nearly 60%.
Bird flu outbreaks have been the main driver of “egg-flation” as producers have been forced to kill millions of egg-laying hens to prevent the spread. Increased demand around the upcoming Easter holiday could push prices even higher.
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The Agriculture Department recently unveiled a $1 billion plan to address soaring egg prices, including additional funding for biosecurity measures and financial relief for farmers. The Trump administration is also considering importing millions of eggs from abroad.
Coffee prices also rose last month, up nearly 2% from January and 6% higher from a year ago. Part of that is due to lower production in important coffee growing countries, like Brazil, Reuters reported last week.
What costs less?
Here are the prices that are down:
Airline fares
From a year ago: -0.7%
From a month ago: -4.0%
Peanut Butter
From a year ago: -4.8%
From a month ago: -2.7%
Sporting goods:
From a year ago: -5.3%
From a month ago: -2.2%
Gasoline:
From a year ago: -3.1%
From a month ago: -1.0%
Airline fares plunged 4% just in February, helping bring down overall inflation. Airfares are down 0.7% from a year ago.
Part of the drop is likely due to weakening consumer demand. Major carriers like Delta, Southwest Airlines and American Airlines have recently lowered their revenue forecasts for the quarter on concerns consumers are pulling back.
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What about housing costs?
Shelter costs rose 0.3% in February, accounting for nearly half of the overall increase for the month. It’s a sign that rising housing costs are a major factor in sticky inflation.
The good news is that the CPI’s shelter index has improved over the past year. Shelter inflation fell to an annual rate of 4.2% in February, the lowest level since December 2021.
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“The housing shelter component of the consumer price index is still strong 4.2%, though has been weakening steadily over the past two years,” Lawrence Yun, chief economist at the National Association of Realtors (NAR), said in a statement.
Because shelter inflation is a lagging indicator, changes in housing costs can take up to six months, or longer, to show up in monthly CPI data.
After rising to 7% to start the year, mortgage rates have trended lower recently. The average rate on a 30-year fixed mortgage fell to 6.63% last week, according to Freddie Mac.
How will this affect interest rates?
The Federal Reserve is not expected to cut interest rates at its meeting next week, and Wednesday’s inflation report is unlikely to change that.
For Americans, that means elevated rates on car loans, credit cards and mortgages are probably here to stay for now.
The added uncertainty around Trump’s tariffs — and the cooling but still resilient labor market — are two reasons the Fed is likely to remain in wait-and-see mode.
Greg McBride, Bankrate’s chief financial analyst: “The Federal Reserve will remain firmly planted on the sidelines at next week’s meeting. Inflation readings still need to show sustained progress toward 2 percent, and the recent economic uncertainty will make them ever more data-dependent in the coming weeks and months.”
Lydia Boussour, senior economist at EY: “The combination of still-elevated inflation and resilient labor market conditions will keep the Fed on hold at the March 18-19 FOMC meeting.”
Lawrence Yun, chief economist at the National Association of Realtors (NAR): “Inflation needs to be convincingly moving towards 2% before the Federal Reserve considers another cut in the short-term fed funds rate.”
