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March 12, 2025

The consumer price index (CPI) rose by 0.2% in February from January and increased 2.8% from a year ago, the lowest since November 2024. That is slightly below the 3% annual increase in January, but still well above a level consistent with the Federal Reserve’s 2% target for the personal consumption expenditures (PCE) index measure of inflation that it targets.

Prices at the gas pump fell, while food prices moderated. The outlier is the cost of proteins; eggs jumped at a double-digit rate for the second consecutive month. They are now up nearly 60% from a year ago on the heels of a bird flu outbreak. Easier year-on-year comparisons contributed to that improvement, as inflation accelerated a year ago.

Momentum measures for the CPI were mixed. The CPI rose 4.3% on a three-month annualized basis, a slowdown from the 4.5% pace of January. The six-month annualized pace held at 3.6%.

The core CPI, which excludes food and energy, matched the 0.2% jump in the overall index. That translates to a 3.1% increase from a year ago in February, the lowest level since 2021. Shelter costs decelerated on a slowdown in hotel room rates, which dropped after surging in response to the thousands displaced by fires in California in January.

The three- and six-month annualized rates rose 3.6% and 3.6% respectively. Both mark a slight slowdown, which is welcome news but was measured prior to tariffs taking effect.

Homeowners� equivalent rents and apartment rents held to the 0.3% pace of January last month. That is a significant cooling from earlier during the pandemic. We should see more cooling in the rent component as we get into 2025. Apartment rents in many markets have rolled over, while housing appreciation has slowed. It takes time for the changes to show up in leases and inflation measures; that should be an area that helps hold down inflation in months to come.

Big-ticket durable goods edged down.  New vehicle and used vehicle prices, which will be among the most boosted by tariffs due to their steel and aluminum content, helped along with other appliances and household furnishings.

The super core services CPI, which strips out shelter costs, rose 0.2% in February, receding from the 0.8% jump in January and returning closer to recent monthly increases. The super core rose 3.8% from a year ago, down from 4.1% in January. An outsize 4% drop in airfares helped but will not flow through into the PCE measures of inflation to be released later this month.

Momentum in the super core index moved down. The three- and six-month moving averages rose to 4.8% and 4.5% respectively. Both were cooler than a month ago but still elevated from the perspective of the Fed.