United States: Inflation Holds Steady… for Now

The monthly increase in headline CPI was broadly in line with expectations in February, after several months during which inflation had generally surprised to the downside. That said, this morning’s February data already feel somewhat dated, as recent geopolitical turmoil and surging oil prices have materially altered the inflation outlook for March.

In February, energy prices made a positive contribution to monthly inflation after several months of declines. Most of the increase came from heating oil prices (+11.1%), while gasoline rose 0.8%. Of course, the picture has changed significantly for the current month. The official national average gasoline price has jumped from US$2.88 per gallon last week to US$3.36 this week. It’s the largest weekly increase since October 2005, when major hurricanes in the Gulf of Mexico drove prices sharply higher. Even if the increase stops here, this surge alone could add at least 0.5 percentage points to headline CPI in March, potentially pushing the monthly gain close to 0.7%. However, if energy prices continue to climb or if the shock spreads rapidly to other goods and services, the upward pressure could be even stronger.

Before these recent disruptions, February showed signs of renewed momentum in food prices after a modest lull in January. Their annual change has climbed back above 3% for the first time since the summer of 2025.

Excluding food and energy, core CPI rose 0.2% in February, slightly slower than January’s 0.3%. Notably, core goods prices increased 0.1%. Although modest, this marks the first meaningful gain since September. Still, the persistent weakness in goods prices over the past year remains surprising given higher tariff levels. It is worth noting, however, that producer and import prices (before tariffs) have shown more upward pressure in recent months, which could eventually flow through to consumer goods prices. That said, the recent reduction in some tariffs following the US Supreme Court ruling may help ease price pressures in certain categories.

Among services excluding energy, the monthly increase slowed from 0.4% in January to 0.3% in February. Shelter costs continue to rise at a moderate pace, but health care services are showing stronger price increases. The annualized three‑month change in services prices excluding energy and shelter continues to accelerate, reaching in February its highest level in nearly two years. A continued acceleration in this category could raise concerns at the Federal Reserve (Fed). Nevertheless, the recent swings in energy prices—and the risk of broader spillover—will likely command most of policymakers’ attention.

Up to February, inflation had remained relatively stable. So far, the worst fears related to higher tariffs have not materialized. But what trade policy has not triggered, geopolitical and military developments could very well bring about. Close monitoring of the situation in the Middle East, and its implications for oil and broader energy prices, will be essential. Headline inflation is almost certain to rise in March (potentially climbing back above 3%). The Fed is still expected to remain on hold, but the guidance it provides following next week’s meeting will be particularly revealing in the current context.