Inflation cooled in February in a much-needed economic win Wednesday for President Trump, whose aggressive trade agenda is spooking Wall Street and could raise prices if suppliers pass the cost of looming tariffs to consumers.
The Consumer Price Index rose 0.2% in February, down slightly from the previous month and lower than expectations. All items increased 2.8% in the 12 months ended in February, or slower than the annual rate of 3% reported for January.
Lower gas prices and housing-related costs were big factors in the change. Egg prices rose 10.4% in February versus 15.2% in January, though egg costs are up 58.8% compared with last year.
Mr. Trump called the report “very good news.”
“When energy comes down, prices are going to be coming down,” he said.
Wall Street investors responded positively, with the stock indexes up at midday after massive losses earlier in the week.
The path forward remains unclear. Mr. Trump says he will impose sweeping reciprocal tariffs in April on any nation that charges levies on U.S. goods crossing their borders, though he’s pulled back on other tariffs at the last moment.
“I have the right to adjust,” Mr. Trump said in the Oval Office. “It’s called flexibility. There will be very little flexibility once we start. April 2 is gonna be a very big day.”
Mr. Trump’s 25% tariff on steel and aluminum imports went into effect on Wednesday, prompting the European Union to impose “swift and proportionate” tariffs on U.S. goods in response.
The EU called the Trump-imposed tariffs unjustified and said it carefully calibrated its response. It will allow paused tariffs from Mr. Trump’s first term to go back into effect on April 1. It will also issue a new package of retaliatory tariffs by mid-April in response to Mr. Trump’s plan to impose new levies on European goods.
Together, the measures will affect $28.3 billion worth of U.S. goods. The levies will hit a range of everyday products, from farm goods to American whiskey, which could hurt red states.
“We deeply regret this measure,” said Ursula von der Leyen, president of the European Commission, the EU’s executive arm. “Tariffs are taxes. They are bad for business and even worse for consumers. These tariffs are disrupting supply chains. They bring uncertainty for the economy. Jobs are at stake. The European Union must act to protect consumers and business. The countermeasures we take today are strong but proportionate.”
Canada also retaliated with $20 billion in tariffs on U.S. goods.
Mr. Trump simply says he will answer tariff increases with reciprocation. “Whatever they tariff us, other countries, we will tariff them,” he said in his speech to Congress last week. “That’s reciprocal back and forth. Whatever they tax us, we will tax them.”
The U.K., which is no longer a part of the EU, was a notable exception among allies. Rather than risk a trade war, Prime Minister Keir Starmer is seeking a separate deal with the U.S., telling Parliament that Britain needs to “keep all options open.”
Tariffs are a tax or duty paid by importers on the goods they bring in from foreign markets. Mr. Trump says tariffs are a great way to force companies to return to America or keep their operations in the U.S., employ American workers and create revenue to fund domestic programs.
The White House frequently characterizes tariffs as a tax on foreign entities, though other nations don’t pay the tariffs directly to the U.S. Treasury. In many cases, U.S. companies that are the “importers of record” will pay the levies, and they might pass on at least some of the cost to consumers through higher prices.
Easing inflation will make it easier for the Federal Reserve to cut interest rates this year. At the same time, tariff-driven price increases could make the central bank think twice about rate cuts.
Responding to those concerns, the White House says the U.S. economy is in transition and will improve once Republicans implement their tax cuts, slash regulations and bring offshore production to the U.S.
“Today’s CPI report shows inflation is declining and the economy is moving in the right direction under President Trump,” White House press secretary Karoline Leavitt posted on X. “This inflation report, much like last week’s jobs report, is far better than the media predicted and the so-called ‘experts’ expected. When will they learn to stop doubting President Trump? As he successfully did in his first term, President Trump is driving down costs through massive deregulation and energy dominance.”
Democrats, meanwhile, say Mr. Trump promised to cut prices on Day 1 but hasn’t shown enough progress.
“Fifty-one days into the Trump administration, and I’m still waiting to see a real plan to lower costs for American families,” said Rep. Brendan Boyle, Pennsylvania Democrat. “Instead of delivering on their promises, Donald Trump and his Republican allies are pursuing policies that do the exact opposite — driving up costs on everyday essentials while betraying the middle class they claim to champion.”
