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A shopper navigates through a grocery store in Toronto, Ontario, on March 4, 2025, amidst the recent announcement of tariffs imposed on goods from Canada and Mexico by U.S. President Donald Trump.
In light of ongoing fears that President Trump’s tariff strategies may exacerbate inflationary pressures, a recent report offers a glimmer of hopeful news.
The consumer price index (CPI) for February is projected to rise by 0.3%, reflecting changes across a wide array of goods and services in the United States, which maintains its status as the largest economy globally. This projection applies to both the overall index and the core measurement, which excludes the typically volatile categories of food and energy.
Year-on-year, this would translate to an inflation rate of 2.9% for the headline figure, with the core inflation rate slightly higher at 3.2%. Notably, both figures are 0.1 percentage points lower than those recorded in January.
While this suggests a continuing, albeit gradual, easing of inflation rates over the past year, it also indicates that the current figures remain significantly above the Federal Reserve’s target of 2%. This scenario may prompt the Federal Reserve to maintain its current stance during the upcoming policy meeting.
According to Morgan Stanley economist Diego Anzoategui, there is an expectation of widespread deceleration among core goods and services. He outlines three contributing factors to the persistent inflation: firstly, prices for used cars are likely to rise due to historical wildfire impacts; secondly, certain goods and services display residual seasonality in February; and thirdly, ongoing supply constraints are expected to sustain higher airfare inflation.
The key question now revolves around future trends.
Trump’s tariff implementations have ignited investor concerns about the potential for increased inflation and a corresponding slowdown in economic growth. With Federal Reserve officials traditionally more focused on inflation as part of their dual mandate to ensure price stability and full employment, prolonged periods of elevated prices could lead to a more cautious approach from the Fed.
However, Federal Reserve Chair Jerome Powell has indicated that, historically, tariffs tend to result in singular price increases rather than being long-term inflation catalysts. If this holds true for the current situation, policymakers may overlook transient price spikes related to tariff actions and continue easing rates, aligning with market expectations for the year.
Goldman Sachs economists suggest that the Federal Reserve is likely to adopt a wait-and-see approach until there is a clearer understanding of the economic landscape, with potential for reducing the benchmark interest rate by half a percentage point later in the year.
The firm anticipates further disinflation influences from a rebalancing across auto, housing rental, and labor markets, while acknowledging that there may be counteracting pressures from healthcare inflation and heightened tariff policies.
The Bureau of Labor Statistics is scheduled to publish the CPI report at 8:30 a.m. ET.
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