Overview
U.S. consumer prices rose 0.3% in February after a 0.2% advance in January, the Labor Department's Bureau of Labor Statistics reported on Wednesday. The monthly increase matched the consensus of economists polled by Reuters.
Energy and headline inflation
Gasoline, which had been edging lower for two consecutive months in the CPI report, moved higher in February as concerns about a widening conflict in the Middle East pushed oil prices up. Data from motorist advocacy group AAA showed prices at the pump jumped by more than 18% to $3.54 per gallon since the U.S.-Israeli war on Iran started at the end of February. Oil briefly surged well above $100 per barrel before backing off on Tuesday after President Donald Trump said the war could end soon.
Tariffs and import cost pass-through
The report also noted inflationary effects related to the staggered pass-through of sweeping tariffs imposed by the administration under a law intended for national emergencies, a law that has since been struck down by the U.S. Supreme Court. While many businesses have absorbed much of the new import duties so far, economists said they were unlikely to continue doing so indefinitely, pointing to persistently higher readings of input costs in the Institute for Supply Management surveys. In response to the Supreme Court ruling, President Trump has imposed a 10% global tariff, which he said would rise to 15%.
Year-over-year readings and core inflation
On an annual basis through February, the CPI rose 2.4%, matching the 12-month increase recorded in January. That pace reflects base effects as some of last year's higher readings fell out of the year-over-year comparison.
Excluding the more volatile food and energy components, the so-called core CPI increased 0.2% in February, after a 0.3% gain in January. The moderation in the monthly core figure was influenced by a decline in used motor vehicle prices and smaller rent increases. Over the 12 months through February, core CPI rose 2.5%, the same 12-month rate reported in January, also reflecting favorable base effects.
Implications for consumers, businesses and policy
The Federal Reserve follows the Personal Consumption Expenditures (PCE) price indexes in assessing progress toward its 2% inflation objective, and markets expect the central bank to leave interest rates unchanged next week. Economists cautioned, however, that the relatively tame core CPI print may not translate into similarly moderate core PCE readings for February because of differences in index weighting and notable strength in services prices reported in January's Producer Price Index.
January's delayed PCE price index data, due on Friday, is expected to show a solid rise in core inflation, while the official PCE inflation data for February will be released on April 9.
Takeaway
February's CPI report shows headline inflation nudging higher amid an oil price-driven rebound in gasoline costs and ongoing tariff-related price adjustments. Core measures eased modestly month to month, but upcoming PCE releases and the evolving geopolitical situation leave the near-term inflation outlook uncertain.