Headline and core consumer prices both rose 0.2% in February, reducing headline CPI from 3% to 2.8% and core CPI from 3.3% to 3.1% year-on-year, respectively.
Encouragingly for the Fed, most categories eased, with particularly notable progress in stubborn core services sectors, indicating continued disinflationary momentum ahead of tariff impacts. We expect this to keep rate cuts on the table for 2025.
Most CPI categories eased in February
Food inflation, particularly groceries, showed less momentum in February, rising 0.2%. Eggs remained the largest driver at 10.4%, albeit this was a slowdown from 15.2% in January. Energy prices also slowed at 0.2% in February, with gasoline prices falling 1%, compensating for a 2.5% rise in natural gas prices and a 1% rise in electricity prices (driven by cold weather across much of the US). Core goods inflation was also modest at 0.2%, ahead of tariff impacts.
Figure 1: Disinflation trends potentially remain in place1

Encouragingly, the “sticky” core services categories (that the Fed closely watches) also eased this month.
Shelter inflation – the largest component of the CPI index – moderated to 4.2% year-on-year, its slowest pace since December 2021. This was driven by a continued steady easing of rental inflation and a significant slowdown in hotel and motel inflation. Excluding shelter, headline CPI was 2%, equal to the Fed’s target.
Growth in “supercore” services inflation (which excludes housing) also moderated, largely driven by a 0.8% decline in transportation services prices in February, with a 4% fall in airline fares the largest factor.
Figure 2: Core services see improvements across most categories1

Tariff uncertainty continues to weigh on consumers
Uncertainty around the Trump administration’s tariff policies has weighed on consumer sentiment over the last month. Although the policy picture continues to change almost day-by-day, the broad consensus among economists is that tariffs will likely impair the growth outlook and will have a short-term inflationary impact (Figure 3).
Figure 3: Tariffs could be inflationary in 2025 and may drag on growth2

We expect the Fed to look through tariffs for now
Tariffs are likely to force a range of one-time goods price adjustments, which may be slightly amplified in the CPI by the latest annually revised index weights. Ultimately, however, we expect the inflationary impact to be transitory by nature. Therefore, the Fed may be prepared to “look through” them and focus on the potential drag on growth, particularly any potential impact on the labor market.
As such, while the policy environment remains tricky, we expect continued disinflation and lower growth expectations will keep further rate cuts on the table in 2025, potentially supporting fixed income investments.