WASHINGTON — U.S. inflation may have cooled a bit last month but it could be a short reprieve as President Donald Trump’s tariffs are widely expected to keep prices elevated in the coming months.
On Wednesday, the Labor Department is expected to report that in February the consumer price index rose 2.9% from a year ago, according to economists surveyed by FactSet. That would be down slightly from 3% in January and the first drop in five months. It fell to a 3 1/2 year low of 2.4% in September.
Core prices, which exclude the volatile food and energy categories, are also expected to slip to 3.2%, down from 3.3% in January. Economists watch core prices closely because they often provide a better read on where inflation is headed.
Yet both measures have largely become stuck at the levels reached last summer, when a retreat in inflation largely stalled after dropping steeply its peak of 9.1% in June 2022. Stubborn inflation would create political problems for Trump, who promised as a candidate to “knock the hell out of inflation.”
And with Trump imposing — or threatening to impose — a wide range of tariffs on imports from Canada, Mexico, China, Europe and India, most economists forecast price growth will likely remain elevated this year.
“There’s no real progress toward that 2% goal,” Dan North, senior economist at Allianz Trade Americas, a financial services firm, said. “I suspect that you’re going to start seeing inflation numbers go the other way.”
Wednesday’s update is unlikely to move the inflation-fighters at the Federal Reserve much closer toward cutting their key interest rate, which they reduced three times last year amid signs that inflation was fading. Fed Chair Jerome Powell said in January that rate cuts were on hold and another reduction is highly unlikely at the Fed’s meeting next week.
On a monthly basis, both headline and core prices are projected to have risen 0.3% in February from the previous month. That would be an improvement from January, when overall inflation spiked 0.5%, but increases at that pace are still too large to get inflation on a yearly basis back to the Fed’s 2% target.
The biggest wild card for the Fed — and the economy as a whole — are the tariffs and Trump’s threats to impose more. Since his inauguration in January, Trump has imposed 20% taxes on all imports from China, and 25% duties on imports from Canada and Mexico, though most of those tariffs have been suspended for a month.
On Wednesday, the administration increased tariffs on all steel and aluminum imports to 25%, promising that the taxes would help create U.S. factory jobs at a time when Trump’s seesawing tariff threats are jolting the stock market and raising fears of an economic slowdown.
The European Union responded in kind almost immediately announcing retaliatory trade action with new duties on U.S. industrial and farm products.
Trump has promised reciprocal duties on countries that tariff exports from the United States, including Europe, India, and South Korea on April 2.
The duties have roiled financial markets and could sharply slow the economy, with some analysts raising the odds of a recession.
Economists at the Yale Budget Lab calculate that the reciprocal tariffs, by themselves, could boost the average U.S. tariff rate to its highest level since 1937, and cost the average household as much as $3,400.
Aside from the tariffs, prices some things, such as eggs, are expected to have gotten even more expensive last month, pushing inflation higher. Avian flu has forced farmers to slaughter more than 160 million birds, including 30 million in January. Average egg prices hit $4.95 a dozen nationwide in February, a record high. The price had consistently been below $2 a dozen for decades before the disease struck.
Economists will also closely watch the prices of new and used cars, auto insurance, airline tickets, and rents, among other items, to get a broader sense of where inflation may be headed. Gas prices are expected to have fallen last month.
Tariffs, according to economics textbooks, are generally expected to result in just a one-time increase in prices, but not necessarily ongoing inflation. Treasury Secretary Scott Bessent made that case in remarks at the Economic Club of New York last week, while acknowledging that prices might be higher.
“We could get a one-time price adjustment,” he said. “Access to cheap goods is not the essence of the American Dream.”
But Fed Chair Jerome Powell noted on Friday that in some cases tariffs could worsen inflation — for example, if they were enacted as a “series” of price hikes that caused consumers to expect inflation to move higher.
“What really does matter is what is happening with long-term inflation expectations,” Powell added. Powell noted that shorter-term expectations for rising prices have risen, partly out of concern about tariffs, though longer-term expectations have been stable.
Even the perception that prices will rise can ignite inflation if if households and businesses alter their behavior ahead of time to offset those price increases. Some companies may begin to charge customers if they expect their own costs to increase, for example.
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AP Writers Josh Boak and Paul Wiseman in Washington, and Lorne Cook and David McHugh in Europe, contributed to this report.
