Forecasts for February CPI Report Show Elevated Inflation Amid Tariff Price Pressures

Key Takeaways

• Inflation likely ticked down in February, but price pressures remain sticky overall.
• Rising prices for new and used cars, insurance, food, and airfare put upward pressure on inflation last month.
• Tariffs threaten to put renewed upward pressure on prices.
• Markets widely expect the Federal Reserve to hold interest rates steady in March.

Forecasts for the February Consumer Price Index report believe inflation moderated somewhat during the month but that price pressures remain higher than Federal Reserve officials would like.

After several months of stalled progress on inflation, concerns about the effects of new Trump administration policies, like tariffs and immigration restrictions, dim the outlook for renewed improvement. Analysts think the initial impact of tariffs will be visible in the report. Against that backdrop, price pressures will likely remain elevated in the near term, with the Fed keeping interest rate cuts on hold until the data shows more improvement.

Overall, economists expect that consumer prices rose 0.3% on a monthly basis in February, according to FactSet’s consensus estimates. That would lower the annual inflation rate to 2.9% from 3.0% in January. Economists expect that core inflation, which excludes volatile food and energy prices, rose 0.3% on a monthly basis and 3.2% on an annual basis.

While the details of new tariffs remain fluid, analysts say pressures from the levies discussed by the Trump administration are already weighing on the outlook as firms begin to frontload their inventory purchases and consumer sentiment sours. “There’s been a lot of confusion, and the uncertainty itself has driven inflationary pressures north,” says Jose Torres, senior economist at Interactive Brokers. He expects 3.3% annual core inflation and 3.0% overall inflation, slightly higher than consensus.

February CPI Report Highlights

• CPI report release date and time: Wednesday, March 12 at 8:30 a.m. EST
• The CPI is forecast to rise 0.3% in February after rising 0.5% in January.
• Core CPI is forecast to rise 0.3% in February after rising 0.4% in January.
• The CPI year over year is forecast to rise 2.9% in February after rising 3.0% in January.
• Core CPI year over year is forecast to rise 3.2% in February after rising 3.3% in January.

Goods Deflation Slows

Torres says that goods deflation, which has put downward pressure on the inflation rate, is beginning to slow. “Goods have been that consistent deflationary force that we can count on ... but now, because of tariff uncertainty, we’re seeing that turn around,” he explains, as firms increase prices or frontload inventory orders ahead of new tariffs.

In February, Torres expects to see prices rise for new and used cars, as well as food and apparel. Goldman Sachs economists also anticipate seeing higher prices for airfare and communications, which includes internet and phone service prices. They expect that shelter prices (which fall under the services umbrella rather than goods) moderated slightly.

Early Tariff Impacts

While new tariffs under President Trump were only in their early stages last month and the outlook for future tariffs changes frequently, analysts say their effects may already be visible in CPI data. Economists from Bank of America pointed to the additional 10% tariffs enacted on China in February in a note to clients last week: “China represents a large share of imports for household furnishings, apparel, and electronics.” They said they expect to see core goods inflation accelerate in February as a result.

Torres says some firms, like car dealerships, are already front-running tariffs by increasing prices. And as US trade policy becomes clearer, the effects on inflation could become more pronounced in the months ahead.

“While February’s CPI report is likely to deliver an initial taste of tariffs, it is likely to be just the start,” Wells Fargo economists wrote in a note to clients last week.

When Will the Fed Cut Rates?

With inflation likely to remain elevated, analysts expect Fed officials to hold interest rates steady at the current range of 4.25%-4.50% when they meet later this month. Bond futures markets are pricing in 98% odds that the central bank leaves rates unchanged, according to data from the CME FedWatch Tool.

But with the outlook for the economy dimming, markets are moving up their expectations for rate cuts this year. Bond futures traders now see a roughly 55% chance of a 0.25-percentage-point cut at the June meeting, up from 43% odds a month ago.

Even if inflation remains elevated, the labor market’s health could tip the scales for central bankers. While February’s jobs report showed robust growth, analysts say headwinds are building, thanks to uncertainty surrounding tariffs and ongoing federal job cuts, not to mention the threat of a broader economic slowdown and the impact of tighter immigration restrictions. “[The Fed is] definitely more sensitive to labor market risks,” Torres says.