US Annual Inflation Slides to Lower-Than-Expected 2.8 Percent

Lower gasoline prices fueled last month’s decline in the consumer price index.

A woman looks at eggs at a store in New York City on Feb. 17, 2025. Samira Bouaou/The Epoch Times

The latest U.S. annual inflation rate, released on March 12, came in below economists’ expectations, driven by lower energy costs.

According to the Bureau of Labor Statistics (BLS), the annual inflation rate slowed to 2.8 percent in February, down from 3 percent in January.

Core inflation, which strips the volatile energy and food components, also eased to 3.1 percent, down from 3.3 percent in the previous month.

The Consumer Price Index (CPI) and core CPI each rose 0.2 percent monthly.

Lower energy costs helped lower inflation last month as gasoline tumbled by 1 percent. The energy index increased by 0.2 percent.

Crude oil prices have taken a sharp dive this year, falling nearly 7 percent to around $67 per barrel. Oil has come under pressure on growing supply, increasing demand fears, and a potential peace agreement in the Ukraine–Russia war.

This has helped gasoline prices start shifting lower. According to the American Automobile Association, the national average price of gasoline is $3.08, down by about 9 percent from a year ago.

The index for shelter jumped to 0.3 percent, accounting for about half of the February increase. In the 12 months ending in February, shelter is up by 4.2 percent.

While economists and policymakers had expected shelter costs to decline sharply by now, progress in combating shelter inflation has been slow. Shelter typically makes up about one-third of the CPI.

In the CPI report, used cars and trucks and apparel registered monthly gains of 0.9 percent and 0.6 percent, respectively.

Eggs continued to rocket in February, surging more than 10 percent. On a year-over-year basis, eggs are up nearly 59 percent.

However, eggflation could be dissipating. According to the U.S. Department of Agriculture, the cost of a dozen eggs is now at the lowest level since December, tumbling below $6.

Last month, Agriculture Secretary Brooke Rollins released a five-step $1 billion plan to fight the ballooning cost of eggs. This included spending $500 million to help poultry producers install biosecurity measures, offering $400 million in relief for farmers impacted by the ongoing avian flu outbreak, and temporarily depending on egg imports.

The overall food index was largely stable in February, rising by 0.2 percent. Supermarket prices were flat at 0 percent, while the food away from home category (restaurants and fast food outlets) increased by 0.4 percent.

Supercore inflation, a measure often used by the Federal Reserve as it narrows inflation to non-housing services, continued its downward trend and slipped below 4 percent for the first time since late 2023. This was partly driven by a 4 percent drop in airline fares.

The White House celebrated the CPI report, stating that it “is far better than the media predicted and the so-called ‘experts’ expected.”

“As he successfully did in his first term, President Trump is driving down costs through massive deregulation and energy dominance. The entire Trump Administration will continue to focus on fixing the economic and inflation nightmare created by the Biden-Harris Administration to unlock the Golden Age of America,” White House press secretary Karoline Leavitt said in a statement.

Market Reaction

Financial markets responded favorably to the softer-than-expected inflation report.

Before the opening bell, the blue-chip Dow Jones Industrial Average surged by nearly 400 points, the tech-heavy Nasdaq Composite Index added more than 300 points, and the broader S&P 500 climbed by 1.1 percent.

U.S. Treasury yields were also higher, with the benchmark 10-year topping 4.31 percent.

“The tariff-battered markets are going to breathe a sigh of relief this morning, as higher inflation was the only thing that could make things worse,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in a note emailed to The Epoch Times.

Disinflation’s Bumpy Path

Since September, efforts to tame inflation have stalled, causing market watchers to reconsider their economic outlook and forcing the Fed to pause its easing cycle.

A chorus of U.S. central bank officials has presented the case that the monetary authorities need to wait until there is evidence that inflation is returning to the institution’s 2 percent target.

In prepared remarks at the Conference on Monetary Policy Transmission and the Labor Market on March 7, Fed Gov. Adriana Kugler supported keeping rates unchanged amid upside inflation risks.

“Given the recent increase in inflation expectations and the key inflation categories that have not shown progress toward our 2 percent target, it could be appropriate to continue holding the policy rate at its current level for some time,” Kugler said.

Fed Chair Jerome Powell reiterated the need for patience on rate cuts amid uncertainty in the financial outlook.

“As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves,” Powell said in prepared remarks at the U.S. Monetary Policy Forum. “We do not need to be in a hurry and are well-positioned to wait for greater clarity.”

The February CPI report could offer the Fed some flexibility to intervene if economic conditions deteriorate, Zaccarelli noted.

“With a lower-than-expected inflation number (both month-over-month and year-over-year), at least the Fed still has the flexibility to step in to support a weaker economy, and that would be good news for markets, which have been through the wringer in the past month and a half,” he said.

According to the CME FedWatch Tool, investors expect the next Fed policy action to be in June or July.

Consumers have adjusted their expectations for the year ahead, anticipating sticky and stubborn inflation.

The New York Fed’s latest Survey of Consumer Expectations (SCE) indicated that the one-year inflation outlook edged up to 3.1 percent from 3 percent in January.

Other surveys, such as the February University of Michigan’s Consumer Sentiment Index, have signaled consumers’ consternation surrounding inflation and the broader economic landscape.

Last week, before a joint session of Congress, President Donald Trump acknowledged that his tariff plans might cause “a little disturbance.”

“Tariffs are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly,” the president said. “There will be a little disturbance, but we’re okay with that. It won’t be much.”

The Federal Reserve Bank of Cleveland’s Inflation Nowcasting Model estimates a sizable drop in inflation ahead of next month’s CPI report.

The annual inflation rate is projected to ease to 2.5 percent, likely fueled by the significant decline in crude oil prices.