US Inflation Expected to Rise in February as Oil Prices Surge Ahead of Iran Conflict

Key Highlights

• Oil Prices set to increas
• US Consumer Price Index (CPI) expected to rise 0.3% in February.
• Annual inflation forecast to remain at 2.4% year-over-year.
• Core CPI, excluding food and energy, projected to increase 0.2% monthly and 2.5% annually.
• Gasoline prices climbed sharply ahead of the US-Israel conflict with Iran.
• The Federal Reserve is expected to keep interest rates unchanged in the near term.

US Consumer Prices Likely Increased in February

US consumer inflation likely accelerated slightly in February as rising gasoline prices pushed overall costs higher, according to economists surveyed ahead of the upcoming Consumer Price Index report.

The Labor Department’s CPI data is expected to show that consumer prices rose 0.3% in February, following a 0.2% increase in January, reflecting higher energy costs and lingering price pressures across several sectors of the economy.

Despite the monthly increase, annual inflation is projected to remain stable at 2.4% year-over-year, suggesting that broader inflation pressures remain relatively contained for now.

Rising Gasoline Prices Driving Inflation

Energy costs played a key role in February’s inflation outlook.

Gasoline prices rose as markets anticipated an escalation in geopolitical tensions in the Middle East, particularly the growing conflict involving Iran, the United States and Israel.

Economists estimate that gasoline prices increased around 0.8% during the month, reversing two consecutive monthly declines.

Since the conflict escalated in late February, gasoline prices have surged even further. According to data from the motorist advocacy group AAA, prices at the pump have climbed more than 18% to approximately $3.54 per gallon.

Oil prices briefly surged above $100 per barrel before retreating after signals that diplomatic negotiations could bring the conflict to an end.

Core Inflation Expected to Remain Moderate

While headline inflation may rise, underlying inflation pressures appear more subdued.

Economists expect core CPI, which excludes volatile food and energy prices, to increase 0.2% in February, down slightly from January’s 0.3% increase.

The moderation is largely attributed to:

• Falling prices for used vehicles
• Slower increases in rent costs
• Lower airfare prices

However, other goods such as apparel, household furnishings and consumer products continue to experience price increases as companies pass along higher input costs.

Tariffs Still Affecting Prices

Inflation pressures are also being influenced by trade policy.

Businesses continue to adjust prices following sweeping tariffs imposed earlier by President Donald Trump, originally introduced under emergency economic authority.

Although the US Supreme Court later struck down the tariffs, their effects are still working through supply chains and consumer prices.

Trump has since proposed a new 10% global tariff, which he said could increase to 15%, raising concerns among economists that price pressures could persist in the coming months.

Food Prices Could Rise Later This Year

Food prices have so far remained relatively stable, but economists warn that the Middle East conflict could push them higher later in the year.

Higher oil prices increase costs across the agricultural supply chain, including:

• Fertilizer production
• Transportation and logistics
• Energy used in farming operations

Analysts estimate that the recent spike in oil prices alone could add 0.15 to 0.30 percentage points to inflation, depending on how the geopolitical situation evolves.

Federal Reserve Likely to Hold Interest Rates

Despite the slight increase in inflation, economists widely expect the Federal Reserve to leave interest rates unchanged at its upcoming policy meeting.

The central bank primarily monitors the Personal Consumption Expenditures (PCE) index, rather than CPI, as its preferred inflation gauge.

However, economists warn that core inflation in the PCE index may still show stronger gains due to differences in weighting and rising service-sector costs.

Inflation Outlook Remains Uncertain

Looking ahead, economists say inflation trends will depend heavily on global energy markets and geopolitical developments.

If oil prices remain elevated or supply disruptions worsen, inflation could accelerate again in the coming months.

However, if energy markets stabilize and supply chains remain intact, inflation could remain near the Federal Reserve’s 2% target range, allowing policymakers to maintain a cautious approach to interest rate decisions.

For now, February’s inflation data will offer an important snapshot of the US economy just before the full impact of the Middle East conflict began to ripple through global markets.