February Inflation: A Temporary Relief or the Start of a Lasting Trend?

‘The February Consumer Price Index was better than expected, but how long will this last?’ Bankrate’s chief financial analyst asked.

An "only one dozen per customer" sign for eggs at Trader Joe’s hangs by the cartons in Merrick, N.Y., on Feb. 16, 2025. Shannon Stapleton/Reuters

Inflation receded in February for the first time since September 2024, driven by easing price pressures for gasoline and shelter.

The U.S. annual inflation rate slowed to 2.8 percent last month. Core inflation, which strips the volatile food and energy components, declined to 3.1 percent, the lowest rate since April 2021.

Next month’s inflation reading is poised to spotlight further progress from falling energy prices.

Following the latest numbers, economic observers have wondered if this trend will persist amid on-again-off-again tariffs and if the Federal Reserve will respond to favorable data by restarting its rate-cutting cycle sooner than expected.

“The February Consumer Price Index was better than expected—but how long will this last?“ Greg McBride, chief financial analyst for Bankrate, told The Epoch Times. “The widespread imposition of tariffs represents upside risks to inflation in the months ahead.”

From Gas to Shelter: Inside the CPI Report

The energy index increased by 0.2 percent from January to February and is down by 0.2 percent from a year ago. The category highlighted a 0.9 percent decline in energy commodities and a sharp 1 percent drop in gasoline costs.

The pain at the pump has diminished because of falling crude oil prices.

West Texas Intermediate, the U.S. benchmark for oil prices, is down by 7 percent this year, trading close to $67 per barrel on the New York Mercantile Exchange.

This is a positive development for motorists, since crude oil costs represent approximately 50 percent of the prices paid by drivers.

Global energy markets have responded to various developments, including a potential peace deal in Eastern Europe, increasing demand fears, and growing output volumes by the Organization of the Petroleum Exporting Countries and its allies.

GasBuddy data suggest that the average price for a gallon of gasoline is $3.03, the lowest March level in four years.

“The average price of gasoline in the U.S. hasn’t been this low in March since 2021, when the pandemic significantly reduced demand and kept prices suppressed,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a note. “This time around, caution is also playing a role in keeping prices lower—particularly uncertainty over tariffs, which is likely having a moderate impact.”

Phil Flynn, energy strategist at The PRICE Futures Group, said the relief in oil and gas prices could dissipate later this spring, since crude demand is proving to be better than expected and refiners are switching from wintertime to summertime gasoline blends.

“The bottom in oil should be close and ... soon refiners will have to ramp up their production of gasoline,” Flynn said in a daily note. “And generally that happens towards the end of March into April and that’s when we should see prices start to increase.”

A sign displays gas prices at a gas station in Chicago on May 21, 2024. Scott Olson/Getty Images

Shelter inflation has been a thorn in the United States’ side since the onset of the COVID-19 pandemic, proving to be stickier than market watchers anticipated.

Last month, the index for shelter rose by 0.3 percent, accounting for about half of the monthly increase in the Consumer Price Index (CPI). In the 12-month period that ended in February, shelter was up by 4.2 percent, down from 4.4 percent in January. This was also down from the March 2023 peak of 8.2 percent.

Recent indicators suggest that shelter costs might have peaked and may be slipping, although at a sluggish pace.

According to Redfin, the median sale price was $379,350 in the four weeks that ended March 2. While this is up by 3.2 percent year-over-year, it represents the smallest increase since September 2024.

The growth rate in the median rent price has flatlined over the past year. In February, rents edged up by 0.6 percent monthly to $1,605.

Breakfast lovers paid close attention to the eggflation numbers in the recent CPI data.

Egg prices have rocketed in recent months. In February, eggs surged by more than 10 percent, and are up by 59 percent in the 12 months that ended in February. However, this might be a lagging indicator, because recent Department of Agriculture data show that egg prices have been tumbling.

After topping $8 per dozen earlier this month, egg prices have declined about 35 percent, to $5.18. This recent development follows the Trump administration’s announcement of a $1 billion plan to tackle soaring egg costs with strategies such as deregulatory efforts and support for affected farmers.

The Fed Is Not in a Hurry

The Fed’s mantra is that it does not respond to a single piece of data. Instead, the U.S. central bank examines the numbers over time to spot a forming trend.

Fed Chair Jerome Powell has reiterated that he and his colleagues are not in a hurry to cut interest rates. At a recent U.S. Monetary Policy Forum event, for example, Powell indicated that the Fed is “well-positioned to wait for greater clarity,” be it tariffs or inflation.

“The cost of being cautious is very, very low,” Powell said in a follow-up Q&A session. “The economy is fine. It doesn’t need us to do anything, really, so we can wait, and we should wait.”

Others have said the Fed should be patient before executing the next quarter-point interest rate cut.

Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, urged the monetary authorities to be cautious before responding to any weakness in the U.S. economy.

“With inflation just recently at a 40-year high, now is not the time to let down our guard,” Schmid said in a Feb. 27 speech at an Agriculture Department event. “It could be argued that some of the factors driving up inflation expectations are likely one-off transitory developments, but again, given recent experience, I am not willing to take any chances.”

Bill Adams, chief economist at Comerica Bank, projected a single quarter-point rate cut this year, potentially in July. The Fed’s policy path, Adams said, will depend on how officials assess economic conditions.

“If the Fed views current policies in isolation, they seem likely to temporarily raise inflation but also soften the labor market,” Adams said in an emailed note to The Epoch Times. “That could justify lower interest rates depending on how the Fed weighs the trade-off between inflation and supporting the job market.”

However, if the U.S. central bank determines that any slowdown is a result of contracting government policies, then monetary policymakers might concentrate on the inflation side of its dual mandate and accept near-term weakness in the labor market.

“The range of outcomes feels wider than usual given the unpredictability of the policies affecting prices and the job market,” he said.

Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill in Washington, on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

At the same time, non-housing core services inflation—one of the central bank’s favorite inflation metrics—has also dipped below 4 percent for the first time since late 2023. If the supercore inflation deceleration continues, it could provide the Fed “room to focus on the growth mandate,” LPL Financial’s chief economist Jeffrey Roach said.

“In the near term, we may see some volatility in consumer prices as businesses and consumers anticipate looming tariffs,” Roach said in a note emailed to The Epoch Times.

President Donald Trump’s 25 percent tariffs on steel and aluminum imports went into effect on March 12. The administration is also poised to implement reciprocal tariffs on all U.S. trading partners in April.

Uncertainty about these adjustments to trade policy has ignited a market rout, sending the tech-heavy Nasdaq Composite Index into correction territory. Investors fear that tariffs could rekindle inflation and weigh on growth prospects.

The futures market is not penciling in any adjustment at next week’s policy meeting. According to the CME FedWatch Tool, investors are listening to Powell and forecasting the next rate cut as early as June.

But while Trump has previously pushed the Fed to lower interest rates immediately, the new administration has refrained from repeating these calls. This could be because the White House is already achieving its aim of declining yields in the U.S. Treasury market.

Falling Rates Helping Consumers

Following the Fed’s super-sized half-point rate cut in September 2024, Treasury yields spiked, with the benchmark 10-year note soaring more than 100 basis points (100 basis points equals 1 percent). The 10-year reached a peak of 4.8 percent in mid-January and has since declined by about 50 basis points.

This has been a positive development for businesses and consumers, particularly prospective homeowners and motorists.

According to Freddie Mac’s Primary Mortgage Market Survey, the average rate on a 30-year fixed mortgage has tumbled 40 basis points over the past two months to 6.63 percent.

Mortgage rates track the 10-year Treasury yield.

“The decline in rates increases prospective homebuyers’ purchasing power and should provide a strong incentive to make a move,” Sam Khater, chief economist for Freddie Mac, said in a statement. “Additionally, this decline in rates is already providing some existing homeowners the opportunity to refinance.”

In the auto loan market, the average auto loan rate has fallen 36 basis points since January, according to Cox Automotive. Approval rates have also risen 10 basis points.

“This slight increase indicates that more consumers could secure auto loans, reflecting a marginally more favorable lending environment,” Cox Automotive stated in a report. “For consumers, the improved access to auto credit is a positive development, particularly for those with lower credit scores.”

Auto loans follow the five-year Treasury yield, which recently slipped below 4 percent before recovering this week.

While credit card interest rates have been gradually slipping, they are expected to come down significantly if the Fed accelerates its rate-cutting campaign.

This month, the average credit card interest rate declined to slightly more than 24 percent, LendingTree noted. This represented the sixth straight monthly decrease following the Fed’s rate cuts in 2024.

Have consumers noticed?

The Federal Reserve Bank of New York’s February Survey of Consumer Expectations suggests that households anticipate tighter credit conditions one year from now. Consumers expressed consternation about inflation, growth, and access to credit, even as recent economic developments showed signs of potentially diminishing these concerns.