By Gregory Heym, BHS Chief Economist and and host of Crossing The Line
With all the tariff threats out there these days, it's appropriate that today's column is all about inflation.
Consumer Prices Rose Less than Expected in February
After some brutal days for stocks, we certainly needed some good news on inflation this week. The consumer price index rose 0.2% last month, slightly below forecasts. Inflation is up 2.8% over the past year, also just below expectations. Core inflation—which strips out food and energy prices—also rose 0.2% in February and was 3.1% above last year’s level.
Here are some other highlights of the CPI report:
- Housing costs rose 0.3% last month, but the annual increase fell to its lowest level since December 2021. This is good news, as the housing component of CPI was responsible for almost half the monthly increase in CPI last month.
- The biggest price declines last month were in airline fares (-4.0%) and gasoline (-1.0%). I hope you all had nice vacations!
- Food costs remain high, rising 0.2% in February and 2.6% over the past year. Egg prices rose 10.4% just last month due to the bird flu, but it looks like some relief may be coming.
While this report is pretty good news, I am obligated to point out that the annual increase in CPI is still way above the Fed’s 2% goal. Now that I’ve said that, let’s get the latest on producer prices.
The producer price index came out the day after CPI and also brought good news. Producer prices were flat in February, below the forecast of a 0.3% increase. Core producer prices fell 0.1% last month, easily beating their estimate of a 0.3% increase. Core PPI is up 3.3% from a year ago, which is also way above the Fed’s 2% inflation target.
The big takeaway here is that inflation cooled a bit last month but still remains way above the Fed’s target. With all the recent chatter about a possible recession, it’s inevitable that worries about stagflation—that’s when prices are rising but the economy is stagnant—will start to rise.
I’m not that worried about a recession just yet, as most of the volatility in markets these days can be blamed on the nonstop threat of tariffs. Once that calms down—hopefully real soon—we will remember that the unemployment rate is just 4.1%, jobs are still plentiful, and claims for unemployment remain very low.
I know that the Atlanta Fed’s GDPNow estimate for 1Q25 GDP growth is a negative 2.4%, but a huge reason for that is the record number of imports flooding this country before any proposed tariffs take effect.