US inflation had steadied in February before war with Iran

US inflation stayed subdued in the month leading up to President Donald Trump’s war with Iran, which has rekindled concerns about resurgent price pressures as energy costs have soared.

The consumer price index (CPI) report showed that inflation steadied at 2.4 per cent in February from the same time in 2025, matching January’s annual increase. On a monthly basis, overall prices ticked up 0.3 per cent.

“Core” inflation, which excludes volatile food and energy prices, also budged little, registering a 2.5 per cent year-over-year pace. Compared with the previous month, these prices were 0.2 per cent higher.

February’s report, which was released by the Bureau of Labor Statistics on March 11, covers the period up until the US and Israel first struck Iran on the final day of the month. Oil prices have whipsawed in the wake of the attacks, which have broadened out across the Middle East as Iran has retaliated.

At one point on March 9, Brent crude, the international oil benchmark, rose as high as US$119.50 a barrel, before retreating as Mr Trump signalled that the war would be over “very soon”.

But even if the conflict were to end today, economists warn that the economic impact is likely to linger for longer. Oil prices, which are not expected to return to pre-conflict levels for quite some time, present a new inflationary risk that will keep officials at the Federal Reserve on edge. At the same time, policymakers at the central bank will be closely watching for any signs that higher petrol prices, which Americans across the country have already started to see, are translating to reduced spending as consumers are forced to prioritise certain purchases.

March 11’s data is unlikely to change the Fed’s perspective that it need not be in a hurry to lower interest rates again after a series of reductions between September and December. Since January, the central bank has voted to hold rates steady at a range of 3.5 per cent to 3.75 per cent, a pause its officials are expected to extend when they vote on policy next week.

Economists on the margins believe that the Iran conflict, and the subsequent energy shock, will delay the Fed’s eventual resumption of rate cuts.

One reason to delay stems from an overarching concern that inflation has been too high for too long. In fact, inflation has exceeded the Fed’s 2 per cent target for roughly five years. Many officials thought 2026 would be the year when they made more progress towards their goal, especially as the impact of tariffs begins to fade. But the energy shock, if sustained, could disrupt that. Some officials may want to see clear signs in the economic data that inflation is indeed in retreat before cutting again.

As concerned as policymakers are about inflation, however, they are also cognisant of the risks posed to the labour market, which has recently shown more notable signs of softening. According to the latest jobs report, employers shed 92,000 jobs in February as the unemployment rate edged up to 4.4 per cent.

Sticky inflation and a weakening labour market is a challenging combination for the Fed, a point that Federal Reserve Bank of Chicago president Austan Goolsbee raised in an interview on March 6.

“If the job market is getting worse and inflation is getting worse at the same time, it’s not obvious to me what the immediate response should be,” he said. NYTIMES