U.S. Consumer Price Index (February 2025)

CPI cools in February, but likely to pick up over the coming months as tariff effects take hold  

• The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in February, or less than half of the monthly gain in January. On a twelve-month basis, CPI was up 2.8% (from 3.0% in January). 
  • Energy prices were relatively flat on the month, while food prices (+0.2% m/m) continued to edge higher and are up 2.6% on a year-ago basis. 
• Excluding food and energy, core inflation also rose 0.2% m/m – a tick below the consensus forecast – and a notable deceleration from the 0.45% m/m gain in January. The twelve-month change ticked down to 3.1% (from 3.3% in January), while the three-and-six-month annualized rates of change both sit at 3.6%.
• A cooling in services price pressures was largely behind the slowdown in inflation last month, which were up a 'soft' 0.3% m/m (0.25% m/m unrounded) compared to a 0.5% m/m in January. On a year-ago basis, services prices remain somewhat elevated, up 4.1% y/y. 
  • Primary shelter costs rose 0.3% m/m and accounted for nearly half of the monthly increase in headline inflation. 
  • Meanwhile, price growth for non-housing services (aka "supercore") slowed to a modest 0.1% m/m gain following a hot 0.8% m/m rise in January. Encouragingly, price growth eased across categories that saw a significant uptick in January, including vehicle insurance (Feb: 0.3 m/m vs. Jan: 2.0% m/m) and travel costs (Feb: -1.5% m/m vs. Jan: +1.4% m/m). 
• Core goods prices rose 0.2% m/m, with notable gains in used vehicle prices (+0.9% m/m), apparel (+0.6% m/m), and home furnishings (+0.2% m/m). 

Key Implications

• Following a sharp uptick to start the year, price growth showed signs of cooling in February. While cooler services price pressures is welcome news, the uptick in apparel and home furnishing costs bear close watching in the months ahead. The additional 10% tariff on Chinese goods that came into effect on February 4th may be already having an impact on consumer prices.    
• Since February, the U.S. administration has imposed an additional 10% tariff on China (effective March 4th) as well as a 25% tariff on all steel & aluminum imports (effective March 12th). It remains to be seen whether the currently paused tariffs on Canada and Mexico as well as the reciprocal tariffs will be implemented on April 2nd. But both the ISM surveys showed a sharp uptick in the 'prices paid' sub-component in February, suggesting price pressures are building further up the supply chain. These are likely to show up in consumer prices over the coming months. As a result, the Federal Reserve is likely to sit tight for now and wait for more clarity on the policy and inflation front before making its next move. Fed futures barely budged post-CPI release and are still showing the next quarter-point rate cut to come in June. 

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