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Consumer prices remained relatively stable in February even as some economists have warned prices could rise again amid Donald Trump’s trade war and stock markets have fallen on fears of a recession.
According to the Bureau of Labor Statistics latest Consumer Price Index (CPI), which tracks the prices of a range of goods and services, the annualized inflation in February was 2.8%, a 0.2% decrease from January’s year-over-year rate of 3%. The month-by-month price increase for all goods minus the volatile food and energy industries was 0.2%, compared to January’s 0.4%.
The egg shortage caused by the avian flu outbreak drove egg prices up 10.4% in February. Meanwhile, energy prices cooled a bit, rising 0.2% in February compared to 1.1% in January.
While inflation has declined sharply from its peak just above 9% in 2022, price increases have remained above the Federal Reserve’s target rate of 2%. The closest inflation has gotten to the target rate was in September, when inflation hit 2.4%.
The Fed had spent the last few years adjusting interest rates in an attempt to gently lower inflation without hurting the labor market. At the end of last year, it seemed like the Fed would achieve the so-called “soft landing”: Prices were coming down, and the unemployment rate remained relatively low at around 4%. The Fed lowered interest rates three times last year. The central bank meets next week and is expected to leave rates unchanged.
But the slow and steady recovery from the inflationary heights reached after the Covid pandemic has been jolted by Donald Trump’s return to the White House. The president has stuck to his campaign promise to use tariffs against the US’s key trading partners, arguing they have taken advantage of the US and done too little to halt the flow of illegal drugs into the country.
So far, he has tacked on an extra 20% tariff on all imports from China and 50% tariffs on steel and aluminum exports from Canada. Threats of other tariffs, including a 25% tariff on all imports from Mexico and Canada, are still up in the air.
The instability of Trump’s trade policies has rocked US stock markets, which has cratered downwards over the last week.
The White House has batted away warnings that reactionary trade policies could destabilize the economy and even cause a recession. Wall Street went down even further on Monday, after Trump didn’t rule out a possible recession, saying on Sunday that the country is in “a period of transition, because what we’re doing is very big”.
The Fed chair, Jerome Powel.l has all but directly confirmed that the central bank will hold rates steady at its next meeting, 18-19 March. In prepared remarks on 7 March, Powell said that the “costs of being cautious are very, very low” given that the economy is in a stable place – for now.
“The economy’s fine. It doesn’t need us to do anything, really. And so we can wait, and we should wait,” Powell said.
Taking pains to avoid any overtly political statements, Powell said that there is “heightened uncertainty about the economic outlook” but “it remains to be seen how these developments might affect future spending and investment”.
