Inflation rises in January ahead of Iran conflict impacting oil prices

U.S. inflation edged higher in January, with prices increasing 2.8% compared to the previous year, the Commerce Department reported Friday. The figure was slightly below December’s annual rise but marked a continued upward trend that predates the recent Iran conflict.

Excluding volatile food and energy costs, core prices rose 3.1%, up from 3% in December and the highest in nearly two years. On a monthly basis, prices increased 0.3%, while core prices jumped 0.4% for the second consecutive month. If sustained, this pace could push inflation above the Federal Reserve’s 2% target.

However, the report’s data was overshadowed by the war with Iran that began Feb. 28. The conflict has led to a shutdown of the Strait of Hormuz, cutting off about 20% of the world’s oil supply. Oil prices have surged more than 40% since the start of the war, and gasoline prices have climbed to an average of $3.60 a gallon from under $3 a month earlier, according to AAA.

Economists forecast that inflation could spike further in March and April due to rising energy costs. The Federal Reserve has maintained its key interest rate at a high level to slow borrowing and spending in an effort to curb inflation. The central bank’s policymakers are expected to hold rates steady at their upcoming meeting amid heightened geopolitical tensions.

Despite inflation concerns, consumer spending remained solid in January, increasing 0.4%, matching December’s growth. Incomes also rose 0.4%, with after-tax income up 0.9%, driven by a significant increase in Social Security benefits following a cost-of-living adjustment at the start of the year. The report also noted that the personal consumption expenditures price index, which often runs hotter than the consumer price index, has recently surpassed it due to differences in how each measure accounts for rental costs.

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