US February consumer price inflation was broadly in line with expectations. Headline prices rose 0.3% month-on-month/2.5% year-on-year while core inflation (excluding food and energy) was only 0.2%/2.4%, suggesting inflation pressures were well-behaved ahead of the military action in Iran. Used vehicle prices fell 0.4% MoM, new vehicle prices were flat, education and communication prices fell 0.2% and housing costs rose only 0.2%, which helped to offset larger increases for appliances (+3.1% MoM) apparel (+1.3%), medical care services (+0.6%) and airline fares (+1.3%).
The chart below shows that sectors vulnerable to the effects of tariffs – goods prices ex food and energy – remain remarkably benign. That is mainly down to weakness in auto prices, but even if we strip out autos, core goods rose only 0.2% MoM. Appliances did catch the eye with their 3.1% MoM increase, following a 1.3% gain in January, but this followed 1.1% and 2.6% monthly drops in November and December so it is difficult to argue tariffs are having a major impact on prices.
All we can say is that with import prices continuing to rise and consumer prices looking benign, the extra $20-$25bn of tariff costs per month are being borne by corporate America. Productivity gains are often cited as a factor limiting the inflation effect, but we note that imports are rising quickly again now that all the pre-tariff inventory build from late 2024/early 2025 has been exhausted. That suggests more tariff costs to come. As such, we can’t exclude the possibility that tariffs will eventually have a more noticeable impact on prices.