US Inflation Dips to 2.8% in February 2025 as Tariffs Loom Large

Inflation in the United States slowed to 2.8% in February, offering a bit of relief to consumers and businesses, though looming tariffs could soon nudge prices higher. The Labor Department reported Wednesday that consumer prices rose 2.8% compared to a year ago, down from January’s 3% increase and below the 2.9% economists had predicted in a Wall Street Journal survey.

The “core” inflation rate, which strips out volatile food and energy costs to reveal deeper trends, climbed 3.1%—also under the expected 3.2%. The milder-than-anticipated figures boosted stock futures, setting the stage for a positive market opening. Yet, experts caution that recent tariff moves by the Trump administration might complicate the outlook.

For now, February’s data only partially reflects new trade policies. An extra 10% tariff on Chinese goods kicked in early last month, but its full impact on retail prices will take time to emerge. Other planned tariffs—like levies on Mexican and Canadian products and an additional 10% on Chinese imports—started this month, with some temporarily paused. On Wednesday, the U.S. also slapped 25% tariffs on all steel and aluminum imports, adding another layer of uncertainty.

Economists are already adjusting their forecasts. Goldman Sachs, for instance, recently bumped its fourth-quarter core inflation estimate to 2.9% from 2.4%, citing tariffs and potential economic shifts tied to Elon Musk’s Department of Government Efficiency. Some on Wall Street even warn that these factors could tip the U.S. into a recession.

The Federal Reserve, which targets a steady 2% inflation rate, tracks a separate Commerce Department measure that typically runs cooler than the Labor Department’s. Still, February’s numbers suggest inflation remains above the Fed’s comfort zone, potentially limiting its room to cut interest rates if the economy falters. Policymakers face a balancing act: easing rates could spur growth but might also fuel price pressures.

Beyond tariffs, everyday costs are grabbing attention. Food prices, especially for eggs hit by bird flu shortages, have ticked up. While food and gas prices swing widely and are excluded from core inflation, they shape how people perceive the economy. “When prices jump, folks notice right away,” said Carola Binder, an economist at the University of Texas at Austin and author of Shock Values. “That sticks with them.”

This heightened awareness could pose a challenge for the Fed. During the 2021-2022 inflation surge, people’s expectations stayed relatively stable—a win for policymakers. Back then, the Fed called the spike “transitory,” expecting supply snarls to fade. But the climb lasted longer than hoped. “After that experience, consumers are more alert,” Binder noted. “They’re less likely to buy that price hikes are just temporary.”

For now, February’s slowdown is a welcome breather. But with tariffs rolling out and shoppers watching every penny, the road ahead looks anything but smooth.