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

March 12, 2025 TruthUSA

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

Inflation receded in February for the first time since September, 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 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? The widespread imposition of tariffs represents upside risks to inflation in the months ahead,” said Greg McBride, Bankrate’s chief financial analyst, in a statement to The Epoch Times.

From Gas to Shelter: Inside the CPI Report

The energy index increased 0.2 percent from January to February and is down 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 due to falling crude oil prices.

West Texas Intermediate (WTI), the U.S. benchmark for oil prices, is down 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 (OPEC) and its allies, OPEC+.

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,” said Patrick De Haan, head of petroleum analysis at GasBuddy, 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.”

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, says Phil Flynn, an energy strategist at The PRICE Futures Group.

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

Shelter inflation has been a thorn in America’s side since the onset of the pandemic, proving to be stickier than market watchers anticipated.

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

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

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

In addition, the growth rate in the median rent price has flatlined over the last year. In February, rents edged up 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 more than 10 percent, and are up 59 percent in the 12 months ended in February. However, this might be a lagging indicator, because recent U.S. 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 followed the current administration’s announcement of a $1 billion plan to tackle soaring egg costs, from deregulatory efforts to offering support for affected farmers.

The Fed Is Not in a Hurry

The Federal Reserve’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. The economy is fine. It doesn’t need us to do anything, really, so we can wait, and we should wait,” Powell said in a follow-up question-and-answer session.

Others say 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 a U.S. Department of Agriculture 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, the chief economist at Comerica Bank, projects a single quarter-point rate cut this year, potentially in July. The Fed’s policy path, Adams says, 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 added.

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) — 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,” said LPL Financial’s chief economist Jeffrey Roach.

“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 taking Powell’s word 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. The silence 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, 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 last 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. Additionally, this decline in rates is already providing some existing homeowners the opportunity to refinance,” said Sam Khater, Freddie Mac’s chief economist, in a statement.

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 underneath 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 notes. This represented the sixth straight monthly decrease following the Fed’s rate cuts last year.

Have consumers noticed?

The New York Fed’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.

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