February inflation was unchanged but predates surge in energy prices

Five years into an era of stubbornly high prices, U.S. households received a reassuring inflation report Wednesday – one that does not capture a war-driven surge in oil prices.

Inflation rose in February at a relatively subdued 2.4 percent annual pace, the same as in January, although the snapshot is already outdated by the Iran conflict.

Subscribe to The Post Most newsletter for the most important and interesting stories from Danchima Media.

Food and energy prices both increased in February, and gasoline prices rose after two prior months of declines.

Overshadowing that data, the U.S. and Israeli campaign against Iran is threatening to push inflation higher at a moment when price pressures are already running above where the Federal Reserve and White House want them. Gasoline prices and airline tickets were climbing this month, and businesses across the economy are bracing for higher transportation costs.

“This is perhaps the most unimportant CPI in years,” said Joe Brusuelas, chief economist at RSM, referring to Wednesday’s consumer price index for February. He estimates that rising oil costs alone could add roughly 0.5 to 0.6 percentage points to the annual inflation rate in next month’s data release.

“That means investors and policymakers can and should effectively discount the February reading,” Brusuelas added.

Rising energy and transportation costs are likely to intensify pressure on President Donald Trump’s administration, which has made tackling high prices and affordability a central political goal. Policymakers face scrutiny from both voters and lawmakers as consumer costs climb, as rising prices threaten to undercut messaging that the economy is stabilizing.

The price for Brent crude, the global oil benchmark, had spiked to nearly $120 a barrel Monday morning, a level that could translate into gas prices surpassing a national average of $4 per gallon. Prices later retreated to just over $90 per barrel Tuesday morning – still significantly higher than before the strikes on Iran at the end of February. Higher oil prices feed quickly into gasoline costs and can ripple through other sectors – lifting the price of airline tickets, shipping and a wide variety of consumer goods that depend on transportation.

While price pressures have cooled markedly since their 2022 peak, inflation has remained stubbornly elevated for five consecutive years as of this month. Economists say it is actually running closer to 3 percent – about a percentage point above the Federal Reserve’s preferred target.

Economists also warn that residual distortions in the consumer price index from the October government shutdown are expected to continue to weigh on the index for the next several months, making inflation appear somewhat cooler than underlying pressures.

The sharp rise in oil prices is also complicating the Fed’s work. Supply shocks such as a jump in energy prices tend to put the central bank in a bind because they push inflation higher while also slowing economic activity, forces that point policymakers in opposite directions.

Economists say the challenge is compounded by longer-term inflation expectations, which have so far remained anchored. But Vincent Reinhart, chief economist at BNY Investments, warned that rapid energy-cost increases could unsettle those expectations, making the central bank’s task of balancing price stability with economic growth even more delicate.

“From the Fed’s vantage point, their nightmare isn’t over,” he said.

The inflation report arrives at a delicate moment for the Fed, which has been trying to guide inflation back to its 2 percent goal without tipping the economy into recession. The central bank cut interest rates three times late last year before pausing in January. Officials are expected to pause again at their policy meeting next week, and investors don’t anticipate they will cut again until September.

Central bank officials rely more heavily on a separate gauge known as the personal consumption expenditures index, which is due later this week and is expected by many economists to show somewhat firmer price pressures than the CPI data. Even before the latest rise in oil prices, forecasters had expected the Fed’s preferred measure to run closer to 3 percent than to the central bank’s target.