Consumer Price Inflation—February 2025
What happened to inflation in February
February data increased at a more modest 0.2% after a 0.5% increase in January. The lower monthly pace helped annual inflation edge down to 2.8% from 3% in January. Nevertheless, against the backdrop of a trade war, markets are on edge about whether this progress will continue.
What else did we see in the February inflation data?
Shelter inflation also moderated to 4.2% from 4.4% in January as the month-to-month rate dropped to 0.3% from 0.4%. Despite steady demand from households that find that the current financial scales in many markets are tipped in favor of renting, market asking rents have been relatively steady. Nevertheless, shelter inflation remains above its immediate pre-pandemic range, which averaged 3.3% (from 2017–19) and continues to account for nearly half of the increase in overall inflation.
Core inflation—a measure that excludes food and energy prices and which is seen as a better indicator of underlying inflation pressure—showed a similar pattern, moderating to a monthly rate of 0.2% from 0.4% in January, bringing the annual rate to 3.1% from 3.3% last month—its slowest pace since April 2021.
What does this mean for homebuyers and sellers
With recession worries rising, attention will be focused on this inflation reading, and today’s data offers a nice counterpoint to last month’s higher-than expected figures. However, it is not enough of an outlier to change the general view that inflation is gradually slowing. Underscoring that it takes several consistent readings to signal a shift, at a forum last Friday, Fed Chair Jerome Powell noted, “[W]e do not overreact to one or two readings that are higher or lower than anticipated.’
Taking a step back, although it is likely to be a lesser driver of inflation this month, housing costs continue to rise. According to a recent report from Realtor.com®, the housing supply gap of 3.8 million homes is an important contributor to higher housing costs. Addressing this shortage would have wide-ranging benefits for households and the economy. It will require concerted effort from policymakers at every level of government. It will be challenging, but not impossible. In fact, as we heard on panels at SXSW in Austin, TX, there are already success stories that can be a model for others to follow.