CPI inflation report provides early relief on tariff concerns

Updated at 8:56 AM EDT

U.S. consumer inflation eased modestly last month, data indicated Wednesday, suggesting little early impact on prices from President Donald Trump's tariff threats, which won't be worked into the economy until later this spring.

The Commerce Department said its headline Consumer Price Index for the month of February was pegged at an annual rate of 2.8%, down from the 3% pace recorded in January and just inside Wall Street's 2.9% forecast.

On a monthly basis price pressures rose 0.2%, slowing from the January advance of 0.5%, which was the highest since 2023. The slower monthly figure came even as domestic gasoline prices increased 1.6%. 

So-called core inflation, which strips out volatile components like food and energy, slowed to an annual rate of 3.1%, besting Wall Street's 3.2% forecast and January's 3.3% pace.

The monthly core reading of 0.2% was also inside Wall Street forecasts and the final January reading of 0.4%.

"Today’s inflation report brings some much needed relief for equity markets, averting immediate concerns around stagflation and giving the Fed space to cut policy rates in the coming months if economic data continue to deteriorate," said Seema Shah, chief global strategist at Principal Asset Management.

However, it’s worth remembering that this may be the calm CPI report before the storm," she added. "Not only does the Fed need to wait for tariff policy clarity, but once tariff implementation arrives it is likely to bring at least some price increases, with the inflation picture potentially getting uglier as the months go on."

U.S. stocks extended gains following the data release, with futures tied to the S&P 500 suggesting an opening-bell gain of 64 points and the Nasdaq called 323 points higher. The Dow is pegged for a 300 point advance

Benchmark 10-year Treasury note yields edged 1 basis points to 4.322% following the data release while 2-year notes were pegged at 3.935%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.33% higher at 103.621.

The CME Group's FedWatch tool, meanwhile, is pricing in little chance of a Federal Reserve rate cut when the central bank meets next week in Washington. It pegs the odds of a quarter-point reduction in June at around 53.5%.

Last week, Fed Chairman Jerome Powell echoed the market's concern about "uncertainty" tied to tariff and economic policies, but he noted that solid labor markets and easing inflation likely mean the central bank remains in "no hurry" to change its key policy rate.

His remarks come, however, amid a host of growth-forecast downgrades from top Wall Street banks. Goldman Sachs lowered its 2025 GDP forecast to 1.7%  to reflect what it called "new tariff assumptions" for the world's biggest economy.

“While our previous tariff assumptions implied a peak hit to year-on-year GDP growth of -0.3 percentage [point], our new assumptions imply a peak hit of -0.8 percentage point. In the risk scenario, this would grow to -1.3 percentage points,” the bank said.

The Atlanta Fed's GDPNow tracker, meanwhile, pegs the current-quarter contraction at around 2.4%. It will be populated with new data starting March 17.

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