February US CPI report shows cooler inflation, a welcome relief for investors

Finally, some welcome news for U.S. equity markets. The February U.S. Consumer Price Index (CPI) inflation report, which provides insight on how the prices of a fixed basket of goods and services changed over the month, came in slightly below consensus expectations. The headline measure (which includes food and energy) came in at 0.2% month-over-month (versus expectations of 0.3%) and the core measure (which excludes food and energy) was 0.2% month-over-month (versus expectations of 0.3%). As a result, the year-over-year change in headline CPI inflation declined from 3.0% to 2.8% and the year-over-year change in the core measure declined from 3.3% to 3.1%.

Under the hood, many of the more volatile categories that drove the upside surprise last month reversed course. The category of transportation services (which includes items like airfares, motor vehicle insurance and motor vehicle maintenance) contributed to the hotter-than-expected inflation in January but the cooler-than-expected inflation in February. Transportation services inflation rose 1.8% in January, then fell 0.8% in February. Beyond transportation services, the rest of the CPI basket looks relatively steady. Shelter inflation continues to show stability at 0.3% monthly growth and medical care services inflation remains steady in recent months averaging 0.2%. Overall food inflation cooled somewhat during the month, but egg inflation (due to the ongoing avian flu) remains high printing 10.5% in February (following 15.2% in January).

We do not foresee the cooler inflation data having an impact on Federal Reserve (Fed) policy decisions in the near-term. We expect the Fed to remain on hold to give themselves time to assess any potential inflation or growth impacts emanating from recently enacted U.S. tariff policies (and subsequent retaliation). Immediately following the report, U.S. interest rates didn’t move notably in either direction.

For investors, the volatility in economic data and in financial markets underscores the importance of revisiting existing asset allocations to ensure that investment portfolios are aligned with longer-term financial goals.

All market and economic data as of 03/12/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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