The Consumer Price Index for February will be reported at 8:30 a.m. ET on Wednesday and is expected to show that prices rose slightly before the Iran war sent energy costs soaring.
Analysts and economists polled expect headline inflation to rise 0.3% from January. Year-on-year, inflation is expected to remain on track at 2.4%. Inflation, which excludes the volatile categories of food and energy, is expected to ease to a 0.2% month-on-month pace, down from 0.3% in January.
“The February CPI report should continue to show that inflation remains contained,” Bank of America economists wrote in a recent note.
What’s worse is that the February report was produced before the US and Israel launched a major attack on Iran on the last day of the month.
The sensitive Strait of Hormuz, in the southwestern corner of Iran, has been effectively closed since the start of the war.
More than 20% of the world’s oil production usually passes through waterways to reach international markets. As a result, the price of US crude oil has increased by more than 20% since the first strikes. The price of retail gas also increased by more than 50 cents.
And in February, the Supreme Court struck down many of President Donald Trump’s tariffs, ruling that he exceeded his presidential authority when he imposed state-specific emergency tariffs last year. Although Trump has replaced some of the tariffs with a global duty of 10%, the impact on prices remains unclear.
“Perhaps more important than the Feb. data is the area of inflation risk,” Bank of America wrote. “Although our case is for the conflict to be short-term, a long-term conflict could lead to a sustained increase in oil prices.”
“That will put upward pressure on headline, core inflation and inflation expectations in the coming months,” BofA analysts added.
JPMorgan Chase’s chief U.S. economist, Michael Feroli, wrote in a paper this week: “The economy shouldn’t have much of a problem resisting rising oil prices, but there is a growing risk that higher prices could trigger a near-term economic slowdown—especially if they rise above $100 per barrel and stick there.”
Still, he said, “the risk remains of a large and sustained increase in oil prices if supply disruptions continue.”
On Tuesday, Iran continued to exchange fire with its regional neighbors.
Morgan Stanley’s economist, Diego Anzoategu, wrote in a recent book that the impact of inflation from high oil prices “is not only small but also very small: historically, the excess occurs mainly with airplanes. Apart from a sharp increase in electricity prices, the effects of primary inflation tend to be temporary and limited.
US oil prices rose above $100 per barrel on Sunday and Monday morning, but since then trading has eased, with the benchmark trading around $85 per barrel late Tuesday.
Airlines used to block surge pricing, but they don’t anymore.
United Airlines CEO Scott Kirby told CNBC on Friday that the fare increase “will begin immediately.” Still, he said, the search “hasn’t taken a single step back” since the war began.
