Consumer prices in the Bay Area rose at a modest pace in February in a sign that yearslong cost-of-living increases have begun to cool, a new federal government report shows.

The Bay Area inflation rate, as measured by consumer prices, rose by an annual pace of 2.7% in February compared with the same month a year earlier, the U.S. Bureau of Labor Statistics reported Wednesday.

The region’s consumer prices have remained below 3% for several months. The last time consumer prices rose above 3% on an annual basis was in June 2024.

“Over the last six months, Bay Area households have received a welcome reprieve from soaring prices,” said Jeff Bellisario, executive director of the Bay Area Council Economic Institute.

Many also had hoped the Federal Reserve would see reports of relatively tame inflation as a sign that the nation’s central bank could reduce short-term interest rates.

“Softening inflation doesn’t seem to be persuading the Federal Reserve to take more drastic action to lower interest rates,” Bellisario said.

If interest rates don’t decline, multiple real estate sectors may face ongoing challenges.

“We anticipate that relatively high rates through the remainder of the year will continue to pose a headwind for residential and commercial real estate markets, as well as for homebuilders,” Bellisario said.

According to the report, food prices rose 1.6% in February compared to 2024. Grocery prices — measured through the cost of food consumed at home — fell at a yearly pace of 0.6%. Food consumed away from home in places such as restaurants rose by 4.6%.

The report also showed that fruit and vegetable prices rose 0.5%, cereal and bakery prices fell 2.4%, and dairy prices declined by 4.5%.

In a reflection of the national egg shortage, the cost of meat, poultry, fish and eggs zoomed higher by 6.8%. Prices for this category began to rise in December 2024 and then continued to soar in January and February.

Bay Area gasoline prices jumped by 5.6%, snapping a string of seven consecutive months of price decreases on an annual basis, the labor agency reported. February’s prices were influenced by the fallout from a fire that knocked a Martinez refinery out of service.

Shelter costs rose 1.9% during the one-year period that ended in February, the report stated. Apparel prices rose 1.7%.

The current pace of consumer prices in the Bay Area trails the pattern of elevated inflation that surfaced in April 2021. Prices spiked to a 40-year high in June 2022 at a yearly pace of 6.8%.

Bay Area prices began to retreat from those levels in mid-2024, according to the federal labor agency’s reports.

Nationwide, consumer prices rose 2.8%.

“This will calm market fears that consumer inflation is meaningfully heating up again,” BMO Capital Markets Chief U.S. Economist Scott Anderson said in a research note.

Nationally, however, most economists expect inflation will remain elevated this year as President Donald Trump’s tariffs kick in.

The report “is encouraging news, though it doesn’t tell us much about where inflation is headed,” Oren Klachkin, Nationwide Financial Markets economist, said in an email to The Associated Press. “With tariffs possibly set to push goods prices higher … we see inflation risks as tilted to the upside.”

How big an impact Trump’s tariffs will have on prices remains unclear, the AP reported. The duties have roiled financial markets and could sharply slow the economy, and some analysts see the odds of a recession rising.

On Wednesday, Trump raised U.S. import taxes on all steel and aluminum imports to 25% each, the AP reported. Some companies that use steel are already seeing their costs rise, and depending on how long they stay in place, they could lift prices for cars, appliances, and electronics. The European Union responded in kind almost immediately to the steel and aluminum duties, announcing retaliatory trade action with new tariffs on U.S. industrial and farm products.

The White House has also imposed 25% duties on all imports from Canada and Mexico, with a 10% rate for oil from Canada, the AP reported. Most of those tariffs have been suspended until early April.

The Associated Press contributed to this report.