Inflation remained cool and steady in February

Inflation remained cool and steady in February
The consumer price index does not include the impact of the U.S.-Israeli war in Iran

Inflation stayed the course in February, but the energy price volatility resulting from the US-Israeli war in Iran will likely have a more substantial impact on consumer prices in the coming months.

The consumer price index rose 0.3% in February, representing a year-over-year increase of 2.4%, the Bureau of Labor Statistics reported Wednesday.

This report mirrored the cooler inflation rate from January and was largely in line with economists’ expectations. Core prices, which exclude food and energy, were up 2.5% from a year earlier.

At face value, Wednesday’s report shows that inflation has smoothened in 2026, bringing it closer to the Federal Reserve’s target of 2.0% than in the second half of 2025. Even so, there is little sign of nearing the 2.0% mark, and many analysts believe that the Trump administration’s tariff policies have yet to pass through completely to consumer prices. The war in Iran will only add to inflationary expectations in the coming months.

According to Oscar Muñoz, chief U.S. macro strategist at TD Securities, the oil shock will likely push inflation up to around 3% year-over-year. Even core prices are likely to be impacted as the downstream impacts of increased fuel costs hit other industries, such as transportation.

For example, Muñoz said that given a significant increase in jet fuel prices, air fare costs are likely to be passed along to consumers. Airline fares increased 1.4% in February, after already having inflated 6.5% in January.

As of March 11, oil is trading internationally at approximately $93 a barrel according to the Brent price barometer, while crude oil futures, as measured by the West Texas Intermediate grade that serves as the benchmark for oil pricing in the United States, are hovering around $86. Both of these figures are the highest readouts since September 2023.

The U.S. Energy Information Administration, an independent government statistical agency, forecasts that the Brent crude oil price will remain above $95 a barrel over the next two months before falling below $80 a barrel in the third quarter of 2026. This sobering prediction indicates that inflation will likely have a broad impact over the next several months.

According to analysts, most but not all of the costs of the Trump administration’s tariffs have been passed through to consumer prices. Some products, such as apparel and electronic appliances, have already seen price hikes over the last year. Others, such as new vehicles, have hardly seen any recent inflation, but may see price increases for consumers in the coming months.

“Car prices have been flat, but they’re going to have to pass that through,” said Peter Morici, an economist and professor emeritus at the University of Maryland, citing the severe Q4 losses posted by General Motors and Ford as evidence.

While the Federal Reserve was already unlikely to cut interest rates next week, it is even less likely to do so now. The Fed’s official inflation metric is the personal consumption expenditure index, which differs slightly from the consumer price index and is projected to have a less sunny readout than the Bureau of Labor Statistics’ report.

Andy Schneider, senior U.S. economist at BNP Paribas, projects that “core PCE could climb to 3.4% year-over-year by Q2,” which “complicates the Fed’s policy path.”