Inflation destroyed more than expected in February, a welcome sign for the Federal Reserve, as it faces the prospect of higher prices and slower growth as a result of President Trump’s trade war.
The consumer price index increased by 2.8 % compared to the previous year, after an increase of 0.2 % on a monthly basis. This was one step under January Paradoxically, a large 0.5 % increase and came below the expectations of economists.
The “core” measure of inflation, which removes volatile food and fuel prices to give a better sense of the underlying voltage, has also been lower. The index increased by 0.2 % compared to the previous month or 3.1 % from the previous year. Both were below the January increase.
Data from the Office of Labor Statistics underlined the abnormal nature of the Fed’s progress to its 2 % target. Prices for consumers, such as eggs and other grocery stores, are increasing again, but the cost for other categories such as gasoline has declined. The fall of the airline airline tickets by 4 % in February was a primary motorcycle of the best of expected data.
Egg prices rose by 10.4 % in February, as bird flu manifestly continued to aggravate the lack of eggs at national level. Egg prices rise almost 60 percent from last year. Food prices rose more widely by 0.2 % or 2.8 % compared to the same time.
The cost for used cars also increased by 0.9 % in February, although new vehicles were slightly reduced. Car insurance, which was a huge driving force for the unexpectedly high increase in the index in January, increased again, but at a much slower rate of 0.3 %. It’s just over 11 percent during last year.
The cost associated with housing has also recorded the smallest 12 -month profit since December 2021, with the shelter index increased by 4.2 %. Between January and February, it increased by 0.3 %.
The big question mark is when Mr Trump’s invoices will begin to affect consumer prices in a more remarkable way. The only invoices during the period covered by February data were the initial contributions of 10 percent imposed by Mr Trump on Chinese imports. Ryan Sweet, chief economist at Oxford Economics, said there was no “distinct impact on the ICC in February, including clothing, furniture and electronic prices”. On the contrary, he expects that contributions to China, which doubled earlier this month, along with the other invoices set by Mr Trump now, to start raising consumer prices in the coming months.
Peter Tchir, head of the Macroeconomic Strategy in Academy Securities, said the greatest result would probably appear in the coming months if Mr Trump followed with mutual invoices to commercial partners. The president threatened to raise US invoices to match what other countries charged to imports, which could increase the cost of products purchased by Americans from abroad.
In addition to the possible price increases, Mr Tchir said he was very worried about the prospects for the economy as a result of administration’s invoices and plans to reduce government spending.
“Development terrorism is real,” he said.
The uncertainty about the orbit of President’s policies has also reinforced fears that businesses will begin to freeze and invest in more importantly as they await clarity in the scope and scale of Mr Trump’s plans.
These concerns have also been implemented in recent measures that follow how consumers feel about the future. According to the latest Federal Reserve Bank survey of New York, consumer expectations over their financial situation in the following year “worsened significantly” as they were supported by inflation that stuck about 3.1 %. Consumer share is now expected to be in worse state of financially one year than now increased to its highest point since November 2023. The average perceived probability of losing a future debt payment increased to the highest level since April 2020.
A combination of deceleration of growth and rejuvenating price pressures puts the Fed in a difficult position, given its command to seek low, stable inflation as well as a healthy labor market.
Since January, Fed officials have justified their ability to keep away in another interest rate cuts and expect more progress in inflation because the economy was doing well. If this durability begins to show signs of cracks before inflation is fully reckoned, the Fed may be more limited to the way it responds.
When the Fed had to deal with a trade war during Mr Trump’s first term, it reduced interest rates by a total of three quarters of a percentage in 2019 in an effort to protect the economy from weakening further.
In his most detailed comments about Mr Trump’s invoices, Jerome H. Powell, the Fed president, acknowledged last week that the financial scene this time was different. “We got out of a very high inflation and we did not fully return to 2 % on a sustainable basis,” he said at an event on Friday.
Mr Powell added that Fed’s formal response to invoices would be to “look” at any hour’s increase, but stressed that officials would be watching for any disorders and how long -term expectations for inflation were shifting. “As we analyze incoming information, we focus on separation of the signal from the noise as the prospect evolves,” he said. “We don’t have to hurry and we are well positioned to wait for more clarity.”
This suggests that the Fed will extend its cessation to interest rates when employees gather next week, maintaining a current range of 4.25 to 4.5 %.
Merchants in future fulfillment markets bet that the Fed will be able to reduce rates three times this year, each by a quarter of the spot. This is more cuts than planned just two weeks ago, reflecting increasing concern for economic prospects.
