Energy, Food Prices Surged In February — Before Iran Fighting Started

Inflation held steady in February as President Donald Trump readied a new military offensive against Iran, but there are clear signs of trouble ahead on prices.

The Labor Department reported on Wednesday that food and energy prices climbed sharply in the weeks leading up to the conflict. Gasoline and fuel oil prices were falling at the start of the year, but the cost of both jumped as markets began to price in a war that would threaten shipments through the Strait of Hormuz, a key waterway for 20 percent of the globe’s oil and gas flows.

Gasoline prices surged at a monthly rate of 0.8 percent in February, and fuel oil was up by an eye-popping 11.1 percent. The monthly rate of inflation on food items roughly doubled compared to February.

Overall prices climbed at an annual rate of 2.4 percent last month, matching what was reported in January. So-called core inflation — which strips out volatile food and energy prices — was also flat at 2.5 percent. But so long as tankers are unable to pass through the strait, analysts are bracing for food and energy prices to rocket.

“The bad news is that March’s inflation data is going to be a harder pill to swallow,” said Art Hogan, the chief market strategist at the wealth management firm B. Riley Wealth. “Gasoline prices are up more than 20% compared with a month ago, which will likely drive energy and transportation prices higher and in turn boost inflation.”

Trump is under immense pressure to stamp out the elevated inflation that derailed Joe Biden’s presidency. But even though price growth slowed in the final months of last year, voters have been frustrated by how tariffs have driven up the cost of living. A protracted conflict with Iran and the disruption of container traffic through the strait have choked off the supply of oil and fertilizer, which is expected to push up politically sensitive food and energy prices in the months ahead.

Oil prices have whipsawed over the last week as traders digested conflicting messages from the administration about the state of the conflict, the release of global oil reserves and attacks on ships around the Strait of Hormuz. Meanwhile, agricultural groups are warning that input costs for farmers are likely to soar until there’s a resolution.

The White House argues that the economy can withstand any market disruptions, which it said would be short-lived.

"The American economy is strong, and once we are past temporary disruptions from Operation Epic Fury, we will see even greater economic progress with cooling inflation, higher real wages, and robust private sector growth thanks to President Trump," White House spokesperson Kush Desai posted on X.

Yet those spikes could complicate the Federal Reserve’s ability to lower interest rates in the months ahead. Trump has complained for the last year that the central bank has held back economic growth by keeping short-term borrowing costs elevated.

“In principle, the Fed should look through this noise, given that oil prices have little to do with the U.S economy at present, and the latest spike in inflation will almost certainly prove temporary,” James McCann, a senior economist for investment strategy at Edward Jones, said after Wednesday's report. “However, in the near term at least, another inflation setback will probably make the central bank cautious when it comes to further interest rate cuts.

Fed policymakers will meet next week to decide on interest rates. Most investors expect the central bank to maintain its target for short-term rates at between 3.5 percent and 3.75 percent.