US inflation eases to 2.8% in February, but new tariffs spark economic uncertainty and market volatility. Fed weighs next steps amid mixed signals.
Washington, March 12, 2025 – The U.S. economy experienced a slight cooling in inflation for February 2025, with the Consumer Price Index (CPI) rising by 2.8% year-over-year, down from January’s 3% increase. However, newly announced tariffs have injected uncertainty into the economic outlook, creating volatility in financial markets.
February’s inflation report highlighted easing price pressures in key areas such as gasoline, groceries, and housing. Despite this progress, inflation remains above the Federal Reserve’s 2% target. Meanwhile, President Donald Trump’s recent tariff policies have sparked fears of higher costs for consumers and businesses, overshadowing the positive inflation data.
Inflation Breakdown for February 2025
| Category | Monthly Change | Annual Change |
|---|---|---|
| Overall CPI | 0.2% | 2.8% |
| Core CPI (Excluding Food & Energy) | 0.2% | 3.1% |
| Food at Home | 0% | 1.9% |
| Energy Commodities (Gas & Fuel Oil) | -0.9% | -3.2% |
| Transportation Services | N/A | 10% |
| Shelter | N/A | 4.4% |
The CPI’s 2.8% annual rise marks a continued decline in inflationary pressures, with core inflation (excluding food and energy) also easing to 3.1% from January’s 3.3%. Monthly inflation rose by 0.4%, consistent with January’s pace. Key contributors to the slowdown include gasoline prices, which declined slightly after months of steady increases, housing costs, which moderated compared to earlier months, and groceries, which showed minimal price growth.
However, some sectors still face elevated costs. For instance, transportation services saw an annual increase of nearly 10%, reflecting persistent supply chain challenges.
While inflationary pressures have eased, President Trump’s recent tariff measures are raising concerns about future price stability. A newly announced 25% tariff on steel and aluminum imports from Canada and other trading partners is expected to ripple through various industries. Although the administration briefly considered increasing the tariff to 50%, it reversed course amid backlash from businesses and allies.
Economists warn that these tariffs could drive up production costs for manufacturers, potentially leading to higher prices for consumers. The uncertainty surrounding trade policies has also rattled financial markets.
U.S. stock markets experienced wild swings on Tuesday as traders digested both the inflation data and tariff announcements. The S&P 500 Index fluctuated between gains and losses, while the Dow Jones Industrial Average closed flat after an initial rally. The Nasdaq 100 Index outperformed slightly, buoyed by tech stocks.
Investors remain divided over the Federal Reserve’s next steps. While cooling inflation raises hopes for potential rate cuts later this year, tariff-related risks could complicate monetary policy decisions.
Despite February’s encouraging inflation data, economists caution that the road ahead is fraught with challenges. Tariffs could offset recent progress in curbing inflation by increasing costs across supply chains. Additionally, sectors like transportation and energy continue to experience price volatility.
The Federal Reserve is likely to monitor these developments closely as it considers its next moves on interest rates. For now, policymakers appear poised to maintain a cautious stance until there is greater clarity on both inflation trends and trade dynamics.
