February’s Consumer Price Index (CPI) report showed inflation pressures eased in February, calming some fears about the health of the US economy during a rocky few weeks for markets.
The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 2.8% over the prior year in February, below January’s 3% annual gain and ahead of economist expectations of a 2.9% annual increase.
The index rose 0.2% over the previous month, a deceleration from the 0.5% increase in January and a beat compared to economists’ estimates of a 0.3% monthly uptick.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in February climbed 0.2% over the prior month, lower than January’s 0.4% monthly gain, and 3.1% over last year — the lowest yearly increase in core CPI since April 2021.
This also marked a downtick from the 3.3% core price increases seen in the prior-month period and was ahead of Bloomberg consensus estimates.
It was the first time since July that both headline and core CPI showed a deceleration in price growth.
“Today’s inflation report brings some much needed relief for equity markets, averting immediate concerns around stagflation and giving the Fed space to cut policy rates in the coming months if economic data continue to deteriorate,” Seema Shah, chief global strategist at Principal Asset Management, said in response to the data.
Heading into the print, fears over stagflation, a bleak economic scenario in which growth stalls, inflation persists, and unemployment rises, had permeated through markets as investors attempt to understand the Trump administration’s shifting trade narrative and other policy uncertainties, including recent efforts from Elon Musk’s Department of Government Efficiency (DOGE).
“Certainly, with extraordinarily elevated policy uncertainty weighing on sentiment, retail companies beginning to sound warning bells around consumer spending, and recession concerns spiking, there is a strong likelihood that the Fed put will need to come into play relatively soon,” Shah said.
WASHINGTON, DC – FEBRUARY 12: Federal Reserve Chair Jerome Powell testifies before the House Committee on Financial Services in the Rayburn House Office Building on Capitol Hill on February 12, 2025 in Washington, DC. Powell reported to lawmakers about the Fed’s continuing efforts to tame inflation and how and when to ease borrowing costs in the face of new tariffs, possible tax cuts and other institutional moves by President Donald Trump’s second administration. (Photo by Alex Wong/Getty Images) ·Alex Wong via Getty Images
In recent weeks, surveys and sentiment indicators — often referred to as “soft” economic data — have been at the center of investor concern, marking the return of “bad news for the economy is bad news for stocks.”
Friday’s jobs report showed the US economy added 151,000 jobs last month, a positive sign for economic growth, but a slight uptick in the unemployment rate and increased wage growth left inflation fears lingering underneath the surface.
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The prices paid index in the ISM’s manufacturing PMI report came in at its highest since June 2022 last week. That data arrived on top of bleak consumer survey results for the month of February.
“The market has gone from one cut this year to expecting at least three,” Mohamed El-Erian, chief economic adviser at Allianz, told Yahoo Finance on Monday. “So the market thinks that the employment part of the Fed’s mandate is going to force the Fed to cut.”
But “we need stable inflation in order for the Fed to respond to the maximum employment part of its mandate,” El-Erian said. “Otherwise, they’re not going to deliver the three cuts.”
Core inflation has remained stubbornly elevated due to sticky costs for shelter and services like insurance and medical care. But shelter did show further signs of easing in February, rising 4.2% on an annual basis, the smallest 12-month increase since December 2021.
On a month-over-month basis, the shelter index increased 0.3% compared to a 0.4% uptick in January. Similarly, the index for rent and owners’ equivalent rent (OER) each rose 0.3% over the prior month. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same property.
“Housing inflation is historically the ‘stickiest’ component of inflation, meaning it takes longer to buck price trends,” Gargi Chaudhuri, chief investment and portfolio strategist at Blackrock, said in a note to clients. “The recent trend in housing prices keeps us optimistic on the future trajectory of inflation.”
The shelter index accounted for nearly half of the monthly headline increase, according to the BLS. ·Grace Cary via Getty Images
Meanwhile, the energy index rose 0.2% month over month after jumping 1.1% in January. On a yearly basis, the energy index was down 0.2%, dragged down by gas prices, which dropped dropped 1% after a nearly 2% increase the previous month.
Coupled with the downtick in gas prices, a 4% decrease in the index for airline fares also helped ease last month’s headline figure.
Notably, food prices showed some signs of deceleration after a few sticky readings, rising 0.2% last month after a 0.5% jump in January. Egg prices, however, continued to surge — up another 10.4% after a 15.2% upswing to kick off the year, largely due to the bird flu impacting supply. On a yearly basis, egg prices have climbed 58.8% with economists warning more pain likely lies ahead.
“In 2015, bird flu caused a spike in egg prices that lasted for several months so we should expect egg prices to stay elevated in the near term,” said Jeffrey Roach, chief economist for LPL Financial.
Other indexes that increased over the month include medical care, used cars and trucks, household furnishings and operations, recreation, apparel, and personal care, according to the BLS.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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