US CPI rises 0.3% in February; Fed seen holding rates

US consumer prices rose moderately in February, suggesting inflation remained contained before a recent surge in energy prices triggered by the conflict involving Iran, according to government data released on Wednesday.

The Consumer Price Index increased 0.3% in February after rising 0.2% in January, the Labor Department’s Bureau of Labor Statistics said.

The reading was broadly in line with economists’ expectations.

On an annual basis, the CPI rose 2.4% in the 12 months through February, unchanged from January’s pace, reflecting the gradual fading of higher price increases recorded a year earlier.

While the data indicates inflation was stable in the period before the latest geopolitical escalation, economists warn that the surge in oil and gasoline prices following the start of the US-Israeli conflict with Iran could soon put renewed pressure on consumer prices.

Iran war causes energy prices to emerge as new inflation risk

Gasoline prices have already begun climbing sharply.

According to data from the motorist advocacy group AAA, average fuel prices have jumped by more than 18% to about $3.54 per gallon since the conflict began at the end of February.

Oil prices also surged above $100 per barrel during the early stages of the conflict before retreating slightly after President Donald Trump suggested the war could end soon.

Even if hostilities were to ease in the near term, economists say the effects of higher energy costs could persist for months, posing a potential challenge for policymakers.

Higher fuel costs not only directly affect household budgets but can also ripple across the economy through increased transportation and production costs.

Economists say Federal Reserve officials will be closely monitoring whether rising gasoline prices begin to weigh on consumer spending, particularly if households shift spending priorities to cope with higher energy costs.

Shelter and food drive monthly gains

The February increase in consumer prices was largely driven by housing costs.

The shelter index rose 0.2% during the month and remained the largest contributor to the overall increase in the CPI.

Food prices also climbed, with the overall food index rising 0.4%.

Food consumed at home increased by the same amount, while food away from home rose 0.3%.

Energy prices rose 0.6% during the month, adding to inflationary pressures.

Several other categories also recorded increases, including medical care, apparel, household furnishings and operations, airline fares and education.

Meanwhile, some components declined.

Prices for communication services, used cars and trucks, motor vehicle insurance and personal care products were among the categories that fell during the month.

Core inflation remains contained

Excluding the more volatile food and energy categories, core CPI rose 0.2% in February after increasing 0.3% in January.

On a year-over-year basis, core inflation rose 2.5%, matching the annual increase recorded in January.

A decline in used vehicle prices and slower growth in rents helped moderate underlying inflation pressures.

One area that remains relatively strong is food inflation.

Overall food prices rose 3.1% from a year earlier, with restaurant prices increasing 3.9%.

Economists say higher food service costs may partly reflect labor shortages in the hospitality sector, which have been exacerbated by tighter immigration enforcement that has reduced the availability of workers.

Fed likely to remain cautious

The latest inflation data is unlikely to significantly alter the Federal Reserve’s current policy stance.

After cutting interest rates several times between September and December last year, the central bank has held its benchmark rate steady since January in a range of 3.5% to 3.75%.

Fed officials are widely expected to maintain that pause when they meet next week, particularly as policymakers weigh competing risks to the economy.

While the recent surge in energy prices could reignite inflation, economists also warn that higher gasoline costs may dampen consumer spending, potentially slowing economic growth.

The conflict involving Iran has therefore introduced a new layer of uncertainty for policymakers, who must balance the risk of rising inflation against the possibility that higher energy prices could weaken demand across the broader economy.