U.S. Inflation Holds Steady in February as Iran War Threatens to Push Prices Higher

TLDR

• U.S. Consumer Price Index rose 2.4% year-on-year in February, matching forecasts
• Core CPI (excluding food and energy) came in at 2.5% annually, also in line with expectations
• The data covers the period before the U.S.-Israel military strikes on Iran began
• Oil prices have surged nearly 18% since late February, with gasoline up 20% for drivers
• The Fed is expected to hold interest rates steady next week at 3.5%–3.75%

February’s inflation numbers looked calm on the surface. But the story behind the numbers is more complicated.

The Consumer Price Index rose 0.3% in February from January, and 2.4% from a year ago. Both figures matched what economists had expected. Core CPI, which strips out food and energy, rose 0.2% for the month and 2.5% for the year — also in line with forecasts.

The Bureau of Labor Statistics released the data on Wednesday, March 11.

Energy prices did tick up in February, as did food costs. But those moves were modest compared to what has happened since the data was collected.

The report covers a period that ended before the U.S. and Israeli military strikes on Iran began in late February. That conflict has since disrupted global oil markets in a meaningful way.

How the Iran Conflict Is Hitting Energy Markets

The Strait of Hormuz — a waterway through which roughly one-fifth of the world’s oil passes — has seen tanker traffic come to a near standstill. Iran has also reportedly placed naval mines across the strait, which prompted President Trump to threaten further military escalation.

Brent crude futures were trading around $92 a barrel at the time of publication, after spiking to nearly $120 per barrel earlier this week. U.S. gasoline prices have jumped 20% as a result.

Bank of America economist Stephen Juneau said oil prices have risen close to 18% since the end of February. He said a longer conflict would likely put upward pressure on both headline and core inflation in the months ahead.

The International Energy Agency has proposed its largest-ever release of strategic oil reserves to help stabilize prices, according to the Wall Street Journal. IEA member nations were expected to vote on the proposal Wednesday. The previous record release was 182 million barrels, made after Russia invaded Ukraine in 2022.

What This Means for the Federal Reserve

The Fed’s preferred inflation gauge — the Personal Consumption Expenditures index — ran at 2.9% annually in December. That is well above the Fed’s 2% target. January PCE data is due Friday, with analysts forecasting a 3.1% annual pace.

The Fed is widely expected to hold rates steady at its meeting next week, keeping them in the 3.5%–3.75% range, according to CME FedWatch data.

The labor market is adding another layer of uncertainty. The U.S. economy unexpectedly lost 92,000 jobs last month, pushing the unemployment rate up to 4.4%.

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