In February, the U.S. experienced a notable deceleration in consumer inflation, surprising many analysts with a lower-than-expected increase. According to the latest government data released on Wednesday, the consumer price index (CPI) rose by just 0.2% last month, marking a slowdown after three consecutive months of rising costs.
This was below the projection of a 0.3% uptick that many economists had anticipated, based on a survey by Bloomberg. Additionally, January saw a higher price growth of 0.5%, intensifying expectations for continued inflationary pressure. On an annual basis, inflation cooled to 2.8% in February, down from January's 3% pace, and this was also slightly better than Wall Street's forecast of 2.9%.
Scott Anderson, the chief U.S. economist at BMO, noted, 'This was a well-behaved CPI inflation report that will raise expectations for an even tamer core (personal consumption expenditures) inflation print later this month.' He expressed confidence that this data would allay market fears regarding a significant rebound in consumer inflation, especially ahead of new tariffs on goods imports that could further complicate circumstances.
Though these figures are encouraging, Anderson cautioned that they would not be sufficient for the Federal Reserve to lower interest rates in March. However, he suggested that there remains potential for rate cuts later this year. Core inflation, which excludes the more volatile food and energy prices, dipped to 0.2% in February from 0.4% in January, falling short of the consensus estimate of 0.3%.
Year-on-year, core inflation stood at 3.1%, again below Wall Street's forecast of 3.2%. Market futures are now reflecting expectations of up to three quarter-point rate cuts within the year, with the first likely occurring as early as June, according to Anderson. This anticipatory shift indicates a market sentiment tilting towards a more accommodating monetary policy in response to these inflation trends. Monthly growth for food prices also moderated to 0.2% from January’s 0.4%, while energy prices decreased significantly to 0.2% from a much higher 1.1%.
The energy index specifically noted a decline in gasoline prices by 1%. On an annual basis, food prices increased moderately by 2.6%, while the energy index experienced a slight dip of 0.2%. Furthermore, growth in shelter costs has also shown signs of softening, easing to 0.3% from 0.4% sequentially.
This category has been a significant contributor to the overall monthly CPI increase, accounting for nearly half of the headline figure reported by the Bureau of Labor Statistics (BLS)..