U.S. inflation held steady in February at 2.4% annually, its lowest level in nearly five years, according to data released Tuesday by the Bureau of Labor Statistics. Core inflation, which strips out volatile food and energy prices, came in at 2.5% year over year. Both figures matched economists’ expectations and were unchanged from January.
The consumer price index rose 0.3% on a monthly basis in February, slightly higher than January’s 0.2% reading. Core CPI posted a 0.2% monthly gain, cooler than January’s 0.3%. The numbers suggest that the disinflation trend that began in late 2025 remained intact heading into March, though rising energy costs from the ongoing conflict in Iran threaten to reverse that progress in the months ahead.
Shelter Costs Cool While Food and Energy Pressures Build
Shelter, the single largest component of the CPI, rose just 0.2% for the month, putting the annual rate at 3.0%. Rent posted a 0.1% monthly increase, the smallest gain since January 2021. For small business owners leasing commercial or retail space, the cooling rental market offers a rare bright spot in an otherwise uncertain cost environment.
Food prices climbed 0.4% for the month, with the annual rate at 3.1%. Dining out costs jumped 3.9% year over year. Beef and veal prices surged 1.5% in February alone, up 14.4% from a year ago. Egg prices, meanwhile, fell 3.8% for the month after months of avian flu-driven spikes, though they remain volatile.
Energy prices rose 0.6% in February. Gasoline increased 0.8% for the month but was still down 5.6% from a year ago. That backward-looking number, however, masks a sharp acceleration already underway. Since the U.S. entered the conflict with Iran in late February, gas prices have climbed from roughly $3.00 per gallon to $3.58, a 19% increase that will not show up in official data until the March CPI report.
Tariff Pressures Surface in Apparel Prices
Apparel prices jumped 1.3% in February, the largest monthly increase since September 2018. Economists flagged the move as an early indicator that tariffs on imported goods are beginning to filter through to consumer prices. For retailers and e-commerce entrepreneurs who source inventory overseas, the spike signals that margin pressure from trade policy may be accelerating.
Appliance prices also climbed 3.1% for the month. Medical care services rose 0.6%, with the annual rate at 4.1%. Auto insurance fell 0.3%, providing some relief after years of relentless increases.
What It Means for Interest Rates and Borrowing Costs
The Federal Reserve meets next week on March 17 and 18 to set interest rate policy. Markets are pricing in a 99.3% probability that the Fed will hold rates steady at 3.5% to 3.75%, according to CME FedWatch data. Traders now expect the next rate cut in September at the earliest, with only a 43% chance of a second cut before year-end.
For founders and small business owners carrying variable-rate debt or planning to seek new financing, the message is clear: borrowing costs are unlikely to ease before the fall. The combination of geopolitical uncertainty and sticky inflation above the Fed’s 2% target leaves little room for the central bank to act.
Economists Warn the Window May Be Closing
Heather Long, chief economist at Navy Federal Credit Union, said that February’s 2.4% reading “is one of the lowest in past five years” but cautioned that the number “won’t remain stable with gasoline surging above $3.50.” Ellen Zentner of Morgan Stanley Wealth Management added that “continued uncertainty translates into continued upside risk for oil prices, keeping the Fed cautious about cutting rates.”
Deutsche Bank analysts noted that “the path towards disinflation has become murkier.” A Eurasia Group analyst warned that rising oil costs “will have knock-on effects on a whole range of goods that Americans will feel in the coming months,” including plastics and potentially food prices if shipping routes remain disrupted.
The February CPI report captures the last clean snapshot of inflation before the Iran conflict began pushing energy costs sharply higher. Business owners who have benefited from the steady disinflation of the past year may need to prepare for a reversal in the months ahead, particularly in transportation, shipping, and any category exposed to global supply chains.
