New government data released Wednesday shows that U.S. inflation remained stubbornly elevated at 2.4% in February, even before a regional war sent oil prices spiraling. The report highlights that grocery and gas prices were already trending upward on a monthly basis before the late-February attacks. This “pre-war” look at the economy suggests that the Federal Reserve was already struggling to reach its 2% inflation goal.
On a month-to-month basis, the consumer price index rose 0.3%, a slight acceleration from the 0.2% increase seen in January. Grocery costs were a major contributor to this trend, rising 0.4% in February alone. These figures indicate that American households were already under financial strain from high food costs before the added burden of a 20% spike in national gasoline prices this month.
The ongoing conflict has paralyzed the Strait of Hormuz, a move that experts say has removed three-quarters of the Persian Gulf’s oil production from the global market. This supply vacuum caused crude to flirt with $120 a barrel earlier this week. Although prices have since fluctuated based on political rhetoric, the instability makes it nearly impossible for economists to accurately forecast the inflation peak for the coming quarter.
Economists warn that the March inflation report could see a monthly jump of 0.9%, the largest in nearly four years. Such a spike would almost certainly force the Federal Reserve to pause any planned rate reductions. Central bank officials are currently divided, as they must balance the inflationary threat of high oil prices against a rising unemployment rate that hit 4.4% last Friday.
The “worst-case scenario” for the Fed is a return of stagflation—stagnant growth combined with high inflation. With the midterms looming, the pressure on the administration to find a swift resolution to the conflict is mounting. If shipments through the Gulf do not resume shortly, the ripple effect of high fuel costs will likely spread to airfares, shipping, and restaurant prices, further draining consumer purchasing power.