February CPI Offers Some Reprieve

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Global Economic Outlook

Global Economy Briefs

Timely insights from the Economy, Strategy & Finance Center

February CPI Offers Some Reprieve

March 12, 2025

Downward surprises in both month-over-month and year-over-year Headline and Core CPI measures in February offer some relief following a spike in inflation at the beginning of the year. Yet, these data do not capture the full brunt of the rapidly escalating tariff environment. While 10% tariffs on Chinese imports were in place over much of February, these tariffs were recently increased to 20% and additional levies on Canada (25%) and Mexico (25%) loom. We expect trade policy to drive inflation higher over the coming months.

Trusted Insights for What’s Ahead^®

Cooler-than-expected February CPI data ensure that the door remains open for Fed rate cuts.
While the prices of certain food items such as eggs rose sharply (10.4%) in February, prices for rental car and airfare moderated, consistent with the loss of momentum in consumer discretionary spending seen in other data. We expect cooler consumer spending to persist.
While these data do capture some tariffs (the initial 10% tariff on China was implemented in early February) this story will become more apparent in the inflation data over the coming months as levies rise and expand to other countries.
We project Core PCE inflation to levitate to 2.7% in Q2 2025 and then to very gradually converge toward the Fed’s 2% target in 2026.

Figure 1. Year-on-Year CPI Inflation

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Author

Erik Lundh

Senior Economist, Global

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