Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The Consumer Price Index came in slightly softer than expected, with both the headline and core indices advancing 0.2% in February. Slower growth in food and energy costs, as well as an easing in core goods and services inflation, helped overall price growth cool. The outturn is a welcome development after January’s unexpectedly strong print.
Stepping back from the month-to-month noise, inflation has essentially moved sideways since early 2024. New and potential tariffs are poised to stoke goods inflation in the coming months, which is unlikely to be offset by further slowing in shelter and other services inflation.
With today’s data in hand, we expect the core PCE deflator to increase around 0.35% in February, which would keep the Fed’s preferred inflation measure running closer to 3% than its 2% goal. This presents a challenging situation for the FOMC, but we expect the Committee to respond with a gradual pace of monetary policy easing later this year amid slower growth and a somewhat softer labor market.