Key inflation measure remains elevated in February before Iran conflict impacts prices
A key measure of inflation remained elevated in February, according to a report from the Commerce Department, before the recent escalation of conflict in Iran spiked energy prices. The Federal Reserve’s preferred inflation gauge increased 0.4% from January to February, slightly higher than the previous month, and rose 2.8% compared to the same period last year, unchanged from January.
The data was delayed due to a backlog caused by a six-week government shutdown last fall. Excluding volatile food and energy prices, core inflation also increased 0.4% in February from January, and was 3% higher than a year earlier. The annual core inflation rate was slightly below January’s 3.1%. If this monthly pace persists, it could surpass the Fed’s 2% inflation target over the year, analysts said.
Economists warn that inflation was already firming before the conflict in the Middle East and is likely to accelerate in March. Kathy Bostjancic, chief economist at Nationwide, said it could take months for energy prices to return to prewar levels, even if the conflict ends soon.
On Friday, the government is scheduled to release the March consumer price index, which is expected to show a 0.9% increase from February and a 3.4% rise year-over-year. This would mark a significant jump from February’s 2.4%, raising concerns at the Federal Reserve that inflation is moving further from its 2% goal. Some Fed officials have indicated the possibility of rate hikes if inflation does not improve.
Thursday’s report also showed that Americans’ incomes declined 0.1% in February, the first drop since October. Consumer spending, adjusted for inflation, barely increased, though spending before adjusting for higher prices rose 0.5% from January. Bostjancic projects inflation-adjusted consumer spending will grow modestly in early 2024, with the economy expected to expand around 2% in the first quarter, driven by investments and a rebound in government spending after last year’s shutdown.
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