In February, US inflation eased more than expected. The US consumer price index (CPI) climbed 2.8% year-on-year in February, down from 3.0% in January and below the market estimate of 2.9%.

On a monthly basis, CPI rose 0.2% in February, down sharply from 0.5% a month prior and below the market estimate of 0.3%. This marked the lowest rate since October 2024. Egg prices continue to soar but decelerated in February and airline fares and gasoline prices declined.

Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, dropped to 3.1% year-on-year, down from 3.3% in January and below the market estimate of 3.2%. This was the lowest level since April 2021. Monthly, core CPI dropped from 0.4% to 0.2%, shy of the market estimate of 0.3%.

The softer-than-expected inflation report is positive news for two reasons. First, it indicates that inflation cooled in the first full month of US President Donald’s Trump term, despite his tariff trade policy. This is a relief for the financial markets, which have posted sharp losses over the fear of a global trade war. Second, fears have eased that the US economy could be hit by stagflation, in which growth stalls and inflation remains high.

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What’s Next for the Fed?

The Federal Reserve remains in a wait-and-see mode as it monitors the effects of Trump’s trade policy on the US economy. The Fed is virtually certain to stay on the sidelines at next week’s rate meeting. The chances of a rate cut at the May meeting have fallen to 36%, down sharply from 46% yesterday, according to CME FedWatch.

US Dollar Steady, US stock Markets Higher after Inflation Report

The US dollar had a muted reaction to today’s soft inflation report. The Dollar showed limited movement against the major currencies, with the exception of the Japanese yen. The USD/JPY currency pair is up 0.62% against the yen, trading at ¥148.68. The Yen has made sharp inroads against the Dollar and strengthened to 146.53 on Tuesday, its strongest level since the first week of October 2024.

US stock markets are in positive territory today in the aftermath of the inflation report.

The Nasdaq 100 Index has jumped 223.99 points (1.16%) and is at 19,600.94. The S&P 500 Index has posted more modest gains, rising 22.11 points (0.39%) and is at 5593.58.

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