Prices consumers pay for a wide range of goods and services rose in line with expectations in February, providing a final look at inflationary pressures before the Iran war-related oil shock rattled the outlook.
The consumer price index rose a seasonally adjusted 0.3% in the month, bringing the 12-month inflation rate to 2.4%, according to Bureau of Labor Statistics data released Wednesday. Both numbers were in line with Dow Jones consensus estimates.
Excluding volatile food and energy prices, core CPI was 0.2% month over month and 2.5% annualized, also in line with expectations, compared to expectations of 0.2% and 2.5%.
The annual rate was unchanged from January, showing that inflation is still above the Federal Reserve’s 2% target but not getting worse.
The report showed that inflation was generally stable, but prices in some product categories, such as used cars and car insurance, fell, while prices for housing and services rose slightly.
Shelter, the single largest component of the CPI, rose 0.2%, bringing the annualized rate to 3%. Within this category, rents increased by just 0.1%, the smallest monthly increase since January 2021.
Apparel prices, which are susceptible to tariff pressure, rose 1.3% from the previous month. New car prices remained steady, rising only 0.5% year-on-year, while energy prices rose 0.6%, with an annual rate of increase of 0.5%.
Food prices rose 0.4% in the month and 3.1% from a year earlier. Egg prices fell by 3.8%, for an annual decline of 42.1%.
Markets had little reaction to the news, with stock market futures mixed and Treasury yields rising.
This data predates the recent spike in oil prices linked to escalating tensions over Iran, meaning the impact of higher energy costs is likely to be felt in the coming months.
The US and Israeli attack on Iran has dramatically changed the outlook, at least in the short term.
After the attack, oil prices soared on concerns about supply disruptions in the Middle East.
Rising oil prices could complicate the outlook for inflation in coming months, as higher prices for gasoline and other energy products often spill over into transportation, shipping and a wide range of consumer goods. A sustained increase in oil prices can quickly translate into headline inflation, even if underlying price pressures remain stable.
But economists generally believe these developments are temporary and likely to subside once the situation in Iran calms down. Oil prices, which briefly topped $100 a barrel on Monday, were still well off those highs, but rose about 4% in Wednesday trading.
From the Fed’s perspective, February’s CPI report is likely to put the central bank on hold as it watches how current geopolitical tensions, on top of last year’s series of interest rate cuts, affect the economic outlook. Traders expect the next rate cut to occur in September, with about a 43% chance of another rate cut before the end of the year, according to CME Group’s FedWatch tool.
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