Inflation Stayed Steady Ahead Of Iran War

Key Takeaways

• The Consumer Price Index rose 2.4% over 12 months ending in February, the same inflation rate as January and matching forecaster expectations.
• The measurement did not show the effect of the Iran war, which sent gasoline prices soaring as oil supplies were disrupted.
• Inflation has run above the Federal Reserve’s goal of a 2% annual rate since 2021.

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A key measure of inflation stayed steady in February before the war in Iran sent gas prices soaring.

The cost of living as measured by the Consumer Price Index rose 2.4% over 12 months in February, the Bureau of Labor Statistics said Wednesday. That was the same annual increase as in January and matched forecasts from a survey of economists by Dow Jones Newswires and The Wall Street Journal. “Core” prices, excluding the volatile categories of food and energy, rose 2.5% over the year, also the same as the previous month and in line with expectations.

The report showed inflation’s trajectory remained steady ahead of the war in Iran, which has driven national average gasoline prices up by more than 50 cents a gallon over the last two weeks. Fighting has disrupted shipping from the oil-producing region.

What This Means For The Economy

Inflation remained in its recent pattern, staying stubbornly above the Fed’s 2% goal but not surging out of control—but the Iran war has shaken up the outlook.

“We should think of this as an inflation floor for the coming months, not a sign of what’s to come,” Jake Krimmel, senior economist at Realtor.com, wrote in a commentary. “Today’s report establishes the cleanest baseline we are likely to see before new price pressures form and grow this spring.”

Inflation has stubbornly remained above the Federal Reserve’s 2% annual target as tariffs have pushed up prices for some goods, even as housing inflation has cooled. Inflation surged in late 2021 as the economy reopened from COVID-19 restrictions and has yet to cool down to pre-pandemic levels.

Tariff-sensitive categories rose, including apparel, which went up 1.3% over the month, and household furnishings, which rose 0.3%. Groceries rose 0.4%, while dining out rose 0.3%.

The deceleration of housing inflation continued, with shelter prices only rising 0.2% over the month, the same as in January, and rent rising 0.1%, the lowest monthly increase since January 2021.

Going forward, the inflation outlook depends on how long the Iran war lasts, and especially whether shipping resumes through the Strait of Hormuz. An estimated 20% of the world’s oil supply travels through the narrow channel, which has been virtually closed because of the threat of Iranian attacks on ships. Not only is gas a major item in household budgets, but higher fuel costs can also push up prices for other goods and services, since most economic activities rely on motor vehicles.

What Does This Mean For the Fed?

The relatively tame inflation report is unlikely to convince Federal Reserve officials to lower interest rates in the coming months, economists said.

Fed officials are instead likely to keep the central bank’s key interest rate higher for longer as they wait to see how the war affects prices. The fed funds rate affects borrowing costs across all kinds of loans, and Fed officials have kept it elevated since 2022 to discourage borrowing and spending and quell inflation. The Fed cut rates late last year to help boost the faltering job market, but has remained in “wait-and-see” mode since its last meeting in January.

Related Education

What Is the Consumer Price Index (CPI)?

Inflation: What It Is and How to Control Inflation Rates

The uncertainty of the Iran war is likely to discourage the Fed from making any moves anytime soon, economists said.

“The February consumer price index is unlikely to move the needle on the outlook for monetary policy, as it’s only just a snapshot of prices immediately before the U.S./Israel-Iran war, which will lead to much stronger headline inflation in March,” Bernard Yaros, lead US economist at Oxford Economics, wrote in a commentary.

Update, March 11, 2026—This story has been updated with additional detail from the CPI report and commentary from economists.

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