U.S. Inflation Slows, Yet Trump’s Tariffs Threaten Future Price Hikes/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ U.S. inflation slowed in February, with core inflation reaching its lowest level since 2021. Grocery prices stabilized, though eggs surged due to avian flu. Trump’s tariffs on imports may keep inflation elevated, raising recession risks.
Inflation and Trade War: Quick Looks
- Inflation Trends: February’s 2.8% inflation rate marks a decline from January’s 3%.
- Core Inflation Drop: 3.1% annual increase, the lowest since April 2021.
- Grocery Prices: Flat overall, but egg prices soared 10.4% in February due to avian flu.
- Tariff Impact: Trump’s new import duties on steel, aluminum, and other goods could drive inflation higher.
- Economic Outlook: Economists warn of prolonged inflation and higher recession risks.
- Federal Reserve Stance: Rate cuts unlikely soon as the Fed monitors inflation and tariffs.
- Stock Market Reaction: Nasdaq rose 1.5%, led by Tesla’s 8% surge, while the Dow and S&P 500 gained less than 1%.
Deep Look: U.S. Inflation Slows, But Trade War Clouds Outlook
Inflation Eases for the First Time in Months
The latest report from the U.S. Labor Department reveals that inflation cooled in February, marking the first decline since September. Consumer prices rose 2.8% year-over-year, down from 3% in January. Core inflation, which excludes food and energy costs, slowed to 3.1%, its lowest level since April 2021.
The monthly increase was also lower than expected. Consumer prices rose just 0.2% from January, compared to a 0.5% spike the previous month. Core prices also rose only 0.2%, below economists’ forecasts.
Despite these declines, inflation remains above the Federal Reserve’s 2% target, raising concerns about potential price pressures in the months ahead.
Grocery Prices Stabilize—Except for Eggs
Food prices showed signs of stabilization, bringing some relief to consumers who have seen grocery bills soar 25% higher than four years ago. However, eggs bucked the trend, surging 10.4% in February alone.
This egg price crisis stems from a severe avian flu outbreak, which has forced farmers to cull over 160 million birds—including 30 million in January alone. The average price of a dozen eggs reached $4.95 nationwide, a record high compared to the sub-$2 averages seen before the outbreak.
Trump’s Tariffs Could Keep Inflation High
While inflation is currently easing, new trade tensions could reverse this trend. President Donald Trump’s tariffs on steel, aluminum, and other imports took effect on March 12, sparking fears of higher consumer prices.
The administration has also hinted at further tariffs, including “reciprocal duties” on countries imposing tariffs on U.S. exports. Analysts warn that if enacted, these policies could push the U.S. average tariff rate to its highest level since 1937. According to the Yale Budget Lab, this could cost the average household up to $3,400 per year in higher prices.
Economic Risks and Recession Fears
Trump’s aggressive trade stance has already rattled financial markets, with analysts warning that import duties could slow the economy and increase the risk of a recession.
Many economists believe that without tariffs, inflation would decline further in 2025. However, if trade barriers remain in place, price growth may stay elevated through the end of the year.
Federal Reserve Holds Off on Rate Cuts
The inflation slowdown gives the Federal Reserve some relief, but policymakers remain cautious. Fed Chair Jerome Powell recently indicated that interest rate cuts are unlikely soon, citing uncertainty surrounding inflation and trade policy.
If inflation stays near current levels without tariffs pushing it higher, the Fed may consider cutting rates later in the year. However, for now, rate policy remains on hold.
Stock Market Responds to Inflation Report
Despite ongoing economic uncertainty, U.S. stock markets bounced higher on Wednesday following the inflation report.
- The Nasdaq gained 1.5%, fueled by Tesla’s 8% rally.
- The Dow Jones and S&P 500 saw modest gains of under 1%.
- Market volatility remains high as investors watch for further trade developments.
What Comes Next?
While the cooling inflation data is a positive sign, economists warn that Trump’s tariff policies could override these gains. If import duties increase production costs, the next inflation report could show renewed price pressures.
The Federal Reserve, businesses, and consumers will be closely watching the impact of tariffs in the coming months. Until then, inflation remains a wildcard in the economic outlook for 2025.
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