The February Consumer Price Index will be released Wednesday at 8:30 a.m. ET and is expected to show that prices rose only slightly just before the Iran war sent energy costs soaring.
Analysts and economists surveyed expect headline inflation to have increased 0.3% since January. Year after year, inflation is expected to remain at 2.4%. Core inflation, which excludes the often volatile food and energy categories, is expected to have declined at a month-on-month pace of 0.2%, down from 0.3% in January.
“The February CPI report should continue to show that inflation remains relatively contained,” Bank of America economists wrote in a recent note.
Crucially, the February report came before the United States and Israel launched a full-scale attack on Iran on the last day of the month.
The critical Strait of Hormuz, off the southwestern corner of Iran, has been effectively closed since the war began.
More than 20% of the world’s oil supply normally transits the waterway to reach international markets. As a result, the price of US crude oil has risen more than 20% since the first strikes. Retail gas prices have also soared more than 50 cents.
Also in February, the Supreme Court struck down many of President Donald Trump’s tariffs, ruling that he exceeded his presidential authority when he imposed country-specific emergency tariffs last year. While Trump has replaced some of the tariffs with a 10% global tariff, the impact on prices is still unclear.
“Perhaps more important than the February data is the evolution of the risk space for inflation,” Bank of America wrote. “While our base case is that the conflict will be short-lived, a longer conflict would likely lead to a more sustained rise in oil.”
“That would put upward pressure on headline inflation, core inflation and inflation expectations in the coming months,” the BofA analysts added.
JPMorgan Chase Chief U.S. Economist Michael Feroli wrote in a note this week: “The economy should not have much trouble weathering a moderate oil price rise, but there is a growing risk that higher prices could create a more significant near-term drag on the economy, particularly if they rose well above $100 a barrel and stayed there.”
Still, he said, “the risk remains of a much larger and more sustained rise in oil prices if supply disruptions persist.”
On Tuesday, Iran continued to exchange fire with its regional neighbors.
Diego Anzoategu, an economist at Morgan Stanley, wrote in a recent note that the impact on underlying inflation of rising oil prices “is not only small but also very limited: historically, the pass-through occurs primarily through airfares. In the absence of a steeper rise in energy prices, the effects on underlying inflation tend to be short-lived and limited.”
US oil prices rose above $100 a barrel on Sunday and Monday morning, but trading has since moderated and the benchmark was trading around $85 a barrel on Tuesday night.
Airlines used to protect themselves against price increases, but they no longer do so.
United Airlines CEO Scott Kirby told CNBC on Friday that the fare increases would “likely begin quickly.” Still, he said, demand “has not receded one small step” since the war began.
