(Reuters) – U.S. consumer prices increased less than expected in February, but the improvement is likely temporary against the backdrop of aggressive tariffs on imports that are expected to raise the costs of most goods in the months ahead.
The consumer price index rose 0.2% last month after accelerating 0.5% in January, the Labor said on Wednesday. In the 12 months through February, the CPI increased 2.8% after climbing 3.0% in January. Economists polled by Reuters had forecast the CPI gaining 0.3% and advancing 2.9% year-on-year.
The first full inflation report of President Donald Trump’s administration still left prices running at levels that economists say are inconsistent with the Federal Reserve’s 2% target.
MARKET REACTION:
STOCKS: U.S. stock index futures extended a gain to +1.2%, pointing to a strong open on Wall Street
BONDS: The 10-year U.S. Treasury yield fell then rose to 4.312% little changed from before the release, while the two-year yield was off slightly at 3.987 after initially falling hard.FOREX: The dollar index extended to 0.25% higher, and the euro eased a bit more to -0.3%
COMMENTS:
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NORTH CAROLINA (by email)
“The tariff-battered markets are going to breathe a sigh of relief this morning, as higher inflation was the only thing that could make things worse. With a lower-than-expected inflation number (both month-over-month and year-over-year), at least the Fed still has the flexibility to step in to support a weaker economy, and that would be good news for markets, which have been through the ringer in the past month and a half.
KAY HAIGH, GLOBAL CO-HEAD OF FIXED INCOME AND LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK (by email)
“The February CPI release showed further signs of progress on underlying inflation, with the pace of price increases moderating after January’s strong release. While the Fed is still likely to remain on hold at this month’s meeting, the combination of easing inflationary pressures and rising downside risks to growth suggest that the Fed is moving closer to continuing its easing cycle.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“We’re not out of the woods, yet. We’re not even in the woods. This report will serve as the baseline for seeing how much tariffs are resulting in higher consumer prices. Good news on CPI could be bad news for profit margins of businesses. Someone pays the price of tariffs and the question is whether companies have the pricing power to push cost increases onto households.”
