The last month of stable prices? Inflation report shows calm before Iran and tariff shocks

Inflation held relatively steady last month, per a Bureau of Labor Statistics report released Wednesday morning. On a monthly basis, the Consumer Price Index rose 0.3%, a slight tick up from January’s pace. Year over year, prices rose 2.4%.

Shelter remains the stickiest issue — once again the “largest factor” in the monthly increase. Food costs climbed 0.4% over the month and 3.1% from last year. One bright spot? The cost of eggs fell 42.1% annually, although that number reflects how dramatically they spiked in the first place, with this report showing what is essentially a correction from record highs.

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The relatively benign headline numbers may be the last one for a while, some experts say. “This week’s CPI print is likely to be the last one showing somewhat stable prices," said Liz Pancotti, Managing Director of Policy & Advocacy at Groundwork Collaborative and a former Boston Fed researcher. Despite the Supreme Court ruling against some of President Donald Trump’s tariffs, Trump has slapped or threatened to slap new tariffs on a range of trading partners, which creates uncertainty for American businesses large and small. The U.S. attack on Iran is also likely to push costs higher in coming months.

February’s slight uptick in consumer confidence is unlikely to see a repeat in the circumstances.

The fresh CPI data also lands as the Federal Reserve prepares to meet next week. Prediction markets see almost no chance of a rate cut, which is unsurprising given the Fed’s dilemma — worrying trends in the labor market, evidenced in the most recent jobs report, combined with unprecedented moves in energy markets amounting to an oil shock. This combination of conditions effectively limits the Fed’s options.

All of this means February’s CPI read is likely to reflect a pre-shock floor, rather than the trend going forward. Some widely followed market analysts are already projecting that if oil prices remain near or rise from current levels, and stay elevated for several months, U.S. inflation could climb to over 3%, erasing years of hard-won Fed progress.

That larger economic piece is also in focus as experts and commenters begin to track the costs of the U.S. attack on Iran. The Atlanta Fed’s GDPNow model, which had been tracking around 3% growth through late February, dropped sharply to 2.1% as the war began.

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