U.S. Core CPI Moderates in February, With Few Surprises in the Readings

We saw little to surprise in February’s U.S. Consumer Price Index (CPI) inflation print: Core CPI (excluding food and energy prices) gained 0.18% month-over-month, a moderation from January’s 0.34% gain, and held steady at 1.8% year-over-year. February’s slower month-over-month pace of core inflation was in line with expectations following January’s bump in hospital reimbursement rates and normalization in retail goods prices following holiday discounting. Shelter prices also moderated in February.

Apparel stays strong

Retail goods prices gained 0.34% month-over-month, led by a 1.5% increase for apparel. The strength in apparel was expected and comes on the heels of January’s 1.7% month-over-month rise. The normalization in apparel prices after heavy discounting in November and December, along with the introduction of spring fashion lines, likely contributed to the two back-to-back above-trend inflation prints, a trend we don’t expect to continue in March. Meanwhile, inflation across other retail goods categories was notably softer, with flat or slightly lower prices for household furnishings, recreation commodities and educational goods.

Auto prices drop

As we expected, new and used auto prices declined in February (by 0.5% and 0.3%, respectively) after accelerating to a 3.7% annualized pace in the fourth quarter of last year. We estimate thata post-hurricane surge in auto demand boosted the year-over-year rate of core CPI by 0.2 percentage point in the fourth quarter; however, auto sales have moderated since the turn of the year, as have the inflationary effects. Looking ahead, the Trump administration’s recently announced steel and aluminum tariffs should put upward pressure on new auto prices. We estimate that a 10% increase in steel prices has historically boosted consumer auto prices by approximately 1%. However, this price adjustment can occur with long lags. Overall, we estimate that the tariffs should contribute around 0.1 percentage point to headline U.S. CPI over the coming year.