February's Consumer Price Index set for release on March 1. Expect modest inflation with core inflation projected to decrease. Impact of Iran conflict on o
Inflation Update: February's Consumer Price Index
The February Consumer Price Index (CPI) is set to be released on Wednesday, March 1, at 8:30 a.m. Eastern Time. Economists expect a modest 0.3% increase in overall inflation from January. Year-over-year, inflation is anticipated to remain at 2.4%. Core inflation, which excludes volatile food and energy prices, is projected to decline to 0.2% month-over-month, down from 0.3% in January. According to Bank of America economists, "The February CPI report should continue to show that inflation remains relatively contained."
Impact of the Iran Conflict on Inflation
On February 26, the U.S. and Israel launched a large-scale military operation against Iran, effectively closing the Strait of Hormuz. Over 20% of global oil supply typically passes through this vital waterway. Since the beginning of the conflict, U.S. crude oil prices have risen more than 20%. Retail gas prices have also seen a significant increase, soaring over 50 cents per gallon. The supply disruption has led to U.S. oil prices surpassing $100 per barrel at times, though they have since moderated.
Tariffs and Oil Prices: A Complex Interplay
On February 22, the Supreme Court ruled against President Donald Trump's tariffs, deeming them an overreach of his executive authority. Although Trump has replaced some tariffs with a global 10% duty, the impact on prices remains unclear. JPMorgan Chase's chief U.S. economist, Michael Feroli, cautions that while the economy can handle moderate oil price spikes, "there is an increasing risk that higher prices could create a more material near-term drag on the economy—particularly if they were to rise well above $100 per barrel and hold there."
The Long-term Outlook for Inflation
Bank of America's analysts predict that a prolonged conflict could lead to a more sustained increase in oil prices, putting upward pressure on both headline and core inflation, as well as inflation expectations. They note that the risk remains for a much larger and more sustained increase in oil prices should supply disruptions persist. Morgan Stanley economist Diego Anzoategui further explains that the impact on core inflation is limited, historically occurring mainly through airfares. However, the effects tend to be short-lived and limited unless there is a sharper rise in energy prices.
Business and Consumer Reactions
United Airlines CEO Scott Kirby informed CNBC that fare increases are likely to start, with demand remaining strong despite the conflict. Airlines, which used to hedge against spiking prices, no longer do so, leaving them more exposed to such volatility. As oil prices continue to fluctuate, the economy and consumer prices may face evolving pressures in the coming months.
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