According to data released by the government on Wednesday, US consumer prices increased moderately in Febrary, which suggests that inflation was contained prior to a recent spike in energy prices caused by conflict with Iran.
Bureau of Labor Statistics, Labor Department: The Consumer Price Index rose 0.3% from 0.2% in the previous month.
This reading is in line with the expectations of economists.
The CPI increased 2.4% on an annual basis in the twelve months to February. This pace was unchanged from that of January, and reflects the slowing down of the higher prices recorded one year ago.
The data shows that inflation was relatively stable before the recent geopolitical upheaval. However, the economists are warning of the potential for a surge in gasoline and oil prices after the US-Israeli war with Iran.
Energy prices rise due to the Iran War, a new inflation threat
The price of gasoline has already started to rise sharply.
The AAA motorist group has reported that the average price of fuel per gallon is up 18% since the beginning of the conflict at the end February.
Oil prices rose above $100 per barrel during the initial stages of conflict, before easing slightly when President Donald Trump said the war might end in the near future.
The effects of high energy prices could last for several months even if the hostilities eased in the short term. This poses a challenge to policymakers.
Fuel costs can affect households directly, but they also have a ripple effect on the rest of the economy.
The Federal Reserve will closely monitor whether the rising price of gasoline begins to affect consumer spending. This is especially true if consumers shift their spending priorities in order to deal with increased energy costs.
Monthly gains from Shelter and Food Drive
Housing costs were a major factor in the February rise in consumer prices.
The CPI’s shelter index increased by 0.2% in February and was the main contributor.
The overall index of food prices rose by 0.4%.
The food consumed in the home has increased by the exact same amount while that eaten away from home has increased 0.3%.
The rise in energy prices of 0.6% this month has added to the inflationary pressure.
Other categories, such as medical care, clothing, home furnishings, operations and airline tickets, also saw increases.
Meanwhile, some components declined.
The prices of communication services, vehicles, insurance, and personal care items all fell in the last month.
The core inflation rate remains within limits
The core CPI increased by 0.2% after rising 0.3% in January, excluding the volatile categories of food and energy.
Inflation core rose by 2.5% on an annual basis. This is the same as what was recorded in January.
Rents and used car prices have both declined, which has helped to moderate inflation.
Food inflation is one area where it remains strong.
Restaurant prices increased 3.9%, while overall food prices increased 3.1%.
According to economists, higher costs in food services may be due to labor shortages within the hospitality industry. This has been made worse by stricter immigration laws that have reduced the number of available workers.
Feds likely to be cautious
Federal Reserve policy is not likely to be significantly altered by the latest inflation figures.
The central bank, after cutting rates multiple times from September to December of last year has kept its benchmark interest rate constant since January at a range between 3.5% and 3.75%.
Fed officials will likely maintain this pause at their meeting next week. This is because policymakers are weighing competing risks for the economy.
The recent rise in fuel prices may have a negative impact on consumer spending and slow economic growth.
As a result, the conflict with Iran is causing policymakers to be more uncertain. They must weigh the risks of inflation and the potential for higher energy costs to weaken the demand in the economy.
The post US CPI rose 0.3% in Feb; Fed sees holding rates could be updated as new information unfolds
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