U.S. inflation stayed subdued in the month leading up to President Trump’s war with Iran, which has rekindled concerns about resurgent price pressures as energy costs have soared.
The Consumer Price Index report showed that inflation steadied at 2.4 percent in February from the same time last year, matching January’s annual increase. On a monthly basis, overall prices ticked up 0.3 percent.
“Core” inflation, which excludes volatile food and energy prices, also budged little, registering a 2.5 percent year-over-year pace. Compared with the previous month, these prices were 0.2 percent higher.
February’s report, which the Bureau of Labor Statistics released on Wednesday, covers the period up until the United States and Israel first struck Iran on the final day of the month. Oil prices have whipsawed in the wake of the attacks, which have broadened across the Middle East as Iran has retaliated. At one point on Monday, Brent crude, the international oil benchmark, rose as high as $119.50 a barrel before retreating as Mr. Trump signaled that the war would be over “very soon.”
But even if the conflict were to end today, economists warn, the economic impact is likely to linger for longer. Oil prices, which are not expected to return to pre-conflict levels for quite some time, present a new inflationary risk that will keep officials at the Federal Reserve on edge. At the same time, policymakers at the central bank will be closely watching for any signs that higher gasoline prices, which Americans across the country have already started to see, are translating to reduced spending as consumers are forced to prioritize certain purchases.
The White House on Wednesday framed the latest inflation report as a victory for Mr. Trump. In a statement, Kush Desai, a White House spokesman, described the American economy as “strong.” He said that after “temporary disruptions” stemming from the conflict in the Middle East, “we will see even greater economic progress with cooling inflation, higher real wages and robust private sector growth thanks to President Trump.”
In February, food prices rose 0.4 percent, or 3.1 percent compared with the same time last year. Grocery prices were up 2.4 percent, or 0.4 percent in February, while food away from home was 3.9 percent more costly on a year-over-year basis.
Coffee prices, which are roughly 18 percent higher compared with a year earlier, rose 1.8 percent in February. Beef prices have risen sharply as well over the last year and are up 14 percent. Last month alone, they rose 1.5 percent.
Energy prices rebounded in February, but with only modest gains. Gasoline prices rose 0.8 percent in February after a 3.2 percent drop in January, a pace that will no doubt quicken as a result of the war. Airline fares rose at a far less rapid pace than in January, but were still up 1.4 percent in February. Prices have risen 7.1 percent from a year earlier.
Sectors most exposed to Mr. Trump’s tariffs, such as appliances, have continued to become costlier. Prices for those goods rose 3.1 percent in February and were up 2.9 percent from a year earlier. Apparel prices have also risen and were up 1.3 percent last month. Furniture prices were flat, but 4.2 percent higher compared with the same time last year.
Housing-related costs, which represent a significant chunk of the overall inflation measure and have steadily declined in recent years, rose 3 percent on an annual basis after the smallest increase in rent since 2021.
Wednesday’s data is unlikely to change the Fed’s perspective that it does not need to be in a hurry to lower interest rates again after a series of reductions between September and December. Since January, the central bank has voted to hold rates steady at a range of 3.5 to 3.75 percent, a pause its officials are expected to extend when they vote on policy next week.
Economists on the margins believe that the Iran conflict, and the subsequent energy shock, will delay the Fed’s eventual resumption of rate cuts.
One reason to delay stems from an overarching concern that inflation has been too high for too long. In fact, inflation has exceeded the Fed’s 2 percent target for roughly five years at this point. Many officials thought this year would be the one when they made more progress toward their goal, especially as the impact of Mr. Trump’s tariffs begin to fade. But the energy shock, if sustained, could disrupt that. Some officials are likely to want to see clear signs in the economic data that inflation is indeed in retreat before cutting again.
Blerina Uruçi, chief U.S. economist at T. Rowe Price, forecasts that oil will struggle to slip below $80 per barrel anytime soon, leaving it far higher than its roughly $60 level at the start of the year.
“Too much geopolitical risk has been exposed,” she said, noting that not only energy prices but also those of insurance and shipping had increased. “I don’t think that’s going to normalize anytime soon.”
Ms. Uruçi said she expected those increases would raise overall inflation significantly in forthcoming months, complicating matters for the Fed. “It should make the Fed more cautious” about future rate cuts, she said.
As concerned as policymakers are about inflation, however, they are also cognizant of the risks posed to the labor market, which has recently shown more notable signs of softening. According to the latest jobs report, employers shed 92,000 jobs in February as the unemployment rate edged up to 4.4 percent.
Andrew Hollenhorst, chief U.S. economist at Citigroup, warned that a weakening labor market, now coupled with surging gasoline prices, created another stagflationary shock for the Fed.
“You’re still filling up the same tank of gas, but now it costs significantly more to do so, and that’s going to take away from your spending on other items,” he said.
It is this dynamic that Austan D. Goolsbee, president of the Federal Reserve Bank of Chicago, said in an interview last week was particularly difficult for the central bank to address, given that it pits the Fed’s goals of low, stable inflation and a healthy labor market against each other.
“If the job market is getting worse and inflation is getting worse at the same time, it’s not obvious to me what the immediate response should be,” Mr. Goolsbee said.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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