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US Inflation Cools to 2.8% in February 2025—But Tariffs and Risks Could Heat Things Up
What’s Happening With Inflation?
Inflation makes groceries cost more or rent feel harder to manage. It’s been unpredictable lately, and March 2025 brought the latest update. As of March 12, prices rose just 2.8% over the year—a bit less than people expected.
This article explains what this means for you, why things like tariffs could complicate it, and where the economy might go. You won’t need an economics degree to follow along. Whether you’re budgeting or just curious, it’s worth knowing. We’ll also share some easy-to-follow stats and personal examples.
The Latest CPI Numbers: A Quick Look
The Data
Image 1: Consumer Price Index (CPI) for urban consumers, March 2024 to now.
- Yearly Increase: Prices rose 2.8% since last February. A dollar from 2024 now buys $1.028 worth. Analysts guessed 2.9%, and January showed 3.0%. (Source: BLS, March 12, 2025)
- Monthly Change: From January to February, prices rose 0.2%. Predictions were 0.3%, after a 0.5% rise last month. (Source: BLS)
- Core CPI: Excluding food and gas:
- Yearly: 3.1%, down from 3.3%, under the 3.2% prediction.
- Monthly: Up 0.2%, not the 0.3% analysts expected. (Source: BLS)
What Stands Out
Image 2: Monthly percent change in CPI for urban consumers (not adjusted), Feb 2024–Feb 2025.
Prices aren’t climbing as fast as some thought. Groceries at home only rose 0.1% since May 2024, but eggs jumped 10.4% due to bird flu hitting farms.
Travel costs, like flights and hotels, dropped 0.3%, likely due to winter storms. Rent is steady at 0.4%, thanks to more apartments being built. Coffee prices went up 1.2%, partly because of supply issues in Brazil.
Wall Street’s Reaction
The markets moved a bit. The dollar dropped from 105.60 to 104.90 before settling at 105.10 after the Fed gave vague comments. Bond yields (loan costs) fell from 4.15% to 4.08%. Bets on a rate cut in June jumped from 60% to 72%. This suggests cheaper loans could come soon.
Why It Matters
The Fed might take a break from raising rates. While egg and coffee prices hurt, steady rent helps balance things out.
Inflation’s Journey Over the Last Year
Here’s how prices have changed month by month since February 2024:
- Feb: 3.2%
- March: 3.5% (oil prices jumped with Ukraine’s issues)
- April: 3.4%
- May: 3.3%
- June: 3.0%
- July: 2.9%
- Aug: 2.5%
- Sept: 2.4% (Fed made big rate cuts)
- Oct: 2.6%
- Nov: 2.7%
- Dec: 2.9%
- Jan 2025: 3.0% (storms hit hard)
- Feb 2025: 2.8%
US Inflation Cools, But Risks Remain
Last March, oil prices jumped, pushing inflation to 3.5%. September saw 2.4% after the Fed cut rates. February’s 2.8% is near the Fed’s 2% target. January’s PCE, their key measure, was 2.4%. Spending is slowing, but supply issues continue.
What’s Shaking the Economy?
Tariff Threats
Goldman Sachs says tariffs could raise borrowing costs and lower stock targets. Tariffs make things cost more. Comerica says a 10% tariff might push prices up 0.3-0.5% in a year. Some argue it will create factory jobs.
Other Bumps in the Road
January storms slowed early 2025 growth. Oil is $85 a barrel, and Middle East tension could raise prices.
Market Vibes
Stocks dropped to 5,528.41 on March 10, down 10% from December. This is due to tariffs and storms. Recession odds for late 2025 are 35%. Spending is still okay, despite the weather.
By the Numbers
- Unemployment: 4.1%
- Jobs: 143,000 added in January
- Core PCE: 2.4% in January
Tariffs are a risk. Oil and storms add to the problems. Jobs at 4.1% keep things stable.
Where’s This All Headed?
February’s 2.8% gives the Fed room to move. PCE is near 2%, and markets hope for a soft landing. Tariffs and oil could cause problems. Goldman sees prices up 0.4% by Q4 if tariffs hit 15%.
Three Paths Ahead
- Most Likely (60%): Prices stay at 2.7-2.9% through 2025. Fed cuts rates 50 points. Stocks around 5,700.
- Tariff Trouble (30%): Prices climb to 3.2% by Q3. Fed holds off. Stocks drop to 5,300.
- Big Dip (10%): Spending falls. Prices drop to 2.2%. Fed cuts 75 points by December.
What to Watch
- Fed’s March 19 meeting
- Tariff timing
- Oil hitting $90
Markets are nervous. CPI is a good sign, but tariffs and energy are risks. TD Securities thinks prices will ease to 3.0% by May.
What We Thought Before the Drop
Analysts expected prices at 2.9%, core at 3.2%. A drop below 2.9% would weaken the dollar and push rate-cut talks. The 2.8% changed the view from “prices are stuck” to “maybe they’re cooling.”
Your Takeaway—and What’s Next
February’s CPI dip to 2.8% is a small win. Prices aren’t rising fast, and the Fed might ease up. But tariffs, oil, and storms keep the future unclear. Your groceries, rent, and job? They’re all tied to this. Share your thoughts below.
