February Inflation Rate Comes in Lower Than Expected

Inflation moderated slightly in February, new data finds, but the numbers likely do not yet reflect President Donald Trump’s tariffs, which economists say may impact inflation in the coming months.

The consumer price index for February increased 0.2% on a monthly basis and rose 2.8% for the 12 months ending in February, the U.S. Bureau of Labor Statistics (BLS) reported March 12. That’s down from the 3% year-over-year increase notched in January and is also lower than economists’ expectations of a 2.9% year-over-year rise.

Core CPI accelerated 0.2% for the month — after increasing 0.4% in January — and 3.1% annually. The annual rate is also down from the month prior.

The index for shelter rose 0.3% in February, accounting for roughly half of the monthly all items increase, the BLS reported. The shelter increase was partially offset by a 4% decrease in the index for airline fares and a 1% decline in the index for gasoline. Food prices were also a factor, rising 0.2% as the index for food away from home increased 0.4%.

Although February’s report indicates some progress, inflation has remained elevated “relative to the level desired by policymakers, with prices remaining sticky across a handful of sectors, including transportation, food, apparel, and new and used cars,” explained Sydney Ross, an economic researcher at SHRM.

Given that inflation is higher than the Federal Reserve’s 2% goal, the bank is not expected to reduce interest rates when it meets next week. “The Fed is likely to maintain an extremely cautious attitude toward any policy adjustments until uncertainty falls significantly,” Ross said.

The inflation data out from the BLS shows some cooling, but things could worsen in the coming months, Ross cautioned.

“Policymakers, employers, and consumers are concerned with factors that could put upward pressure on inflation in the near future,” she said. “In particular, uncertainty over the implementation of widespread tariffs and possible retaliation, as well as how such policies will reverberate across the broader economy, make it difficult to conduct business as usual and plan accordingly. This lack of clarity of what goods and countries will be subject to duties going forward has created a fluid situation policymakers and employers are monitoring in real time, while consumers are anticipating paying higher costs in the near term.”

Ross noted that due to its timing, the February report will likely not reflect these developments.

Real Earnings Tick Up

Real average hourly earnings for all employees increased slightly from January to February, rising 0.1%, seasonally adjusted, the BLS reported separately March 12. This result stems from an increase of 0.3% in average hourly earnings combined with an increase of 0.2% in the CPI for all items.

Real average weekly earnings increased 0.1% over the month due to the change in real average hourly earnings combined with no change in the average workweek. 

Meanwhile, real average hourly earnings increased 1.2%, seasonally adjusted, from February 2024 to February 2025. The change in real average hourly earnings combined with a 0.6% decrease in the average workweek resulted in a 0.6% increase in real average weekly earnings over this period.

The earnings report was released the same day as Payscale’s annual compensation report, which found that employers are eyeing smaller raises this year: On average, organizations are reducing pay increases by 0.3 percentage points, planning for 3.5% pay raises in 2025, compared to the 3.8% given in 2024, Payscale found.