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If President Donald Trump’s budding trade war is driving inflation, it’s not showing up in the data yet.
The Consumer Price Index (CPI) report from the U.S. Bureau of Labor Statistics shows prices rising 2.8% year over year and 0.3% month over month in February. Both numbers are below expectations and represent a decline from January.
Core inflation — a metric that excludes volatile food and energy costs — shows inflation at 3.1% year over year. The index for shelter costs rose 0.3% compared to January, and these costs accounted for almost half of the headline inflation figure.
While the inflation rate has declined, the Federal Reserve is targeting 2% inflation as its goal. This makes it unlikely that the central bank will cut benchmark rates next week. And it’s more bad news for the housing market, which has been stagnant for years due in part to high mortgage rates.
“With inflation where it is currently, it is a near certainty that the Federal Reserve will not cut the federal funds rate when they meet next week,” Bright MLS chief economist Lisa Sturtevant said in a statement. “What is also certain is that it is getting harder to predict where the housing market might head this spring.”
While the decline in the inflation rate is good for consumers, the elephant in the room is President Trump’s chaotic approach to trade policy, which economists believe will put upward pressure on inflation.
Trump’s 25% tariff on Canadian steel and aluminum imports went into effect on Wednesday. A bevy of tariffs are scheduled to begin on April 2 when the one-month pause on Mexican and Canadian tariffs for goods not covered by the United States-Mexico-Canada Agreement (USMCA) will expire.
Trump’s global reciprocal tariffs — which are the most dramatic of his trade proposals — will also begin on April 2.
While it’s often hard to tell what Trump’s true intentions are, economists fear that the uncertainty alone will result in U.S. homebuilders and other companies raising prices just to be safe. The National Association of Home Builders (NAHB) said it has learned that some builders are pricing in a $7,500 to $10,000 markup to cover any tariffs that take effect.
“The modest improvement [in inflation] is still not enough to prompt a March rate cut, but it does potentially give the Fed greater flexibility to consider more rate cuts later this year,” First American senior economist Sam Williamson said in a statement.
“However, the impact of new tariffs likely hasn’t materialized yet, leaving uncertainty around inflation as we approach spring, supporting the Fed’s cautious approach in the coming months.”
