U.S. inflation holds at 2.4% in February as Iran war-driven oil shock looms

Consumer prices in the United States rose at a steady pace in February, keeping inflation close to the Federal Reserve’s goal just as a new oil shock tied to the war with Iran threatens to push costs higher in the months ahead.

The Labor Department said Wednesday that its consumer price index increased 0.3% in February from January on a seasonally adjusted basis. Prices were up 2.4% from a year earlier, matching January’s annual rate and marking one of the lowest readings since early 2021.

Stripped of volatile food and energy costs, so‑called core prices climbed 0.2% on the month and 2.5% over the year. The overall index now stands at 326.785, using a base of 100 for the 1982–84 period.

The report, covering prices paid by urban consumers nationwide, offers a snapshot of an economy that appeared to be edging toward a soft landing: inflation cooling to near the Fed’s 2% target while growth slows but does not collapse. But it also captures conditions just before global oil markets were roiled by conflict in the Middle East.

A last prewar snapshot

February’s data reflect prices collected before early March, when a drone attack on Saudi Aramco’s Ras Tanura refinery and a widening conflict involving Iran, the United States, Israel and Gulf allies sent crude oil back above $100 a barrel.

That timing is crucial. Gasoline prices at the pump had only begun to creep higher during the month. The energy index, which had dragged headline inflation down in January with a 1.5% monthly drop, turned 0.6% higher in February. Gasoline prices rose 0.8% on the month, while fuel oil jumped 11.1%.

Over the past year, though, energy prices were still up only 0.5%, with gasoline down 5.6% from February 2025. That backward‑looking comparison is likely to flip as higher crude costs work their way through refineries and into retail prices this spring.

Economists at major banks have warned that if oil remains elevated, the shock could add roughly half a percentage point to global inflation this year and potentially more if disruptions in the Persian Gulf persist. Higher fuel costs also tend to spill over into other categories, from groceries to airline fares, through more expensive transportation and input costs.

Shelter and food keep pressure on budgets

Behind the benign‑seeming 2.4% headline figure, several essentials that weigh heavily on household budgets continued to run hotter than overall inflation.

The index for food rose 0.4% in February and 3.1% over the past 12 months. Grocery prices were up 2.4% from a year earlier, while the cost of eating out — food away from home — climbed 3.9%.

Shelter costs, which include rents and a measure of what homeowners would pay to rent their homes, increased 0.2% on the month and 3% over the year. The Bureau of Labor Statistics said shelter was “the largest factor in the monthly increase in the index for all items,” underscoring how housing has remained a persistent driver of inflation even as goods prices have cooled.

Energy services added to the strain, particularly for households facing winter utility bills. The index for utility (piped) gas service rose 3.1% in February and 10.9% over the past year. Electricity prices fell 0.7% on the month but were up 4.8% from a year earlier.

By contrast, many goods categories that had surged during the pandemic showed little or no inflation. Prices for commodities excluding food and energy commodities — a grouping that includes vehicles, household goods and apparel — rose just 0.1% in February and 1% over the year. New vehicle prices were essentially flat from a year ago, and used cars and trucks were 3.2% cheaper.

Medical care services, however, rose 0.6% on the month and 4.1% from a year earlier, adding to costs for consumers who rely on health services.

Labor market cools as prices settle

The inflation report landed against a weaker backdrop for jobs. Separate data from the Labor Department showed nonfarm payroll employment fell by 92,000 in February, after a gain of 126,000 in January. The unemployment rate edged up to 4.4%, up from levels near 3.5% that prevailed through much of 2023 and early 2024.

Job losses were concentrated in health care, information and the federal government. Labor officials noted that strike activity contributed to the decline in health care employment.

Despite the softening labor market, workers’ pay has recently been outpacing prices. Adjusted for inflation, average hourly earnings rose 0.2% in February and 1.4% compared with a year earlier. The department said real average hourly earnings for all employees increased from $11.38 in January to $11.40 in February, using constant 1982–84 dollars.

Real weekly earnings inched up 0.1% on the month, as average weekly hours were little changed. Independent analyses show, however, that inflation‑adjusted wages for middle‑income workers remain below their peak reached in the early months of the COVID‑19 pandemic.

Fed’s balancing act grows more complicated

With headline and core inflation hovering just above 2% and real wages rising, the Federal Reserve has evidence that its campaign of interest rate hikes has slowed price growth without yet triggering a deep downturn. The central bank has kept its benchmark federal funds rate in a range of 3.5% to 3.75% since January and is widely expected to leave rates unchanged at its March 17–18 policy meeting.

Minutes from the Fed’s January session showed officials acknowledging that inflation had “eased over the past year but remains somewhat elevated.” A few policymakers favored cutting rates sooner, citing signs of cooling economic activity, but the majority opted to hold steady.

The February inflation data broadly supported that cautious stance, showing progress but not a decisive return to the 2% target. At the same time, the sudden jump in oil prices has complicated the outlook.

If the Fed moves too quickly to cut borrowing costs to support the slowing job market, it could risk stoking a second wave of inflation if energy prices feed into broader price setting. If it remains on hold or signals rates will stay high for longer to guard against that risk, it could deepen the drag on hiring and growth.

Financial markets reflected that tension. After the release of the CPI report and fresh headlines on the Iran conflict, yields on 10‑year U.S. Treasury notes climbed, with benchmark rates approaching 4.2%. Higher yields tend to raise costs for mortgages, corporate borrowing and other loans, tightening financial conditions even without an official Fed move.

Politics and the cost of living

The direction of inflation has become a central political issue as President Donald Trump and congressional candidates look ahead to the 2026 midterm elections.

The White House has pointed to the decline in inflation from peaks above 8% in 2022 to levels near 2% as evidence that its policies — including pressure on the Fed to fight inflation and support for domestic energy production — are working. Trump has recently argued that higher oil prices could be “good for American energy producers,” even as motorists face rising pump prices.

Democratic lawmakers and candidates have focused on the categories where costs remain elevated, including rent, groceries and utilities, and have criticized the administration’s 15% global tariff surcharge as a “tax on American consumers” that raises prices on imported goods and inputs. Some have also linked the Iran conflict to renewed volatility in energy markets and warned of “stagflation‑like” conditions if growth slows while prices rise again.

For many households, the technical differences between a 2.4% inflation rate and the Fed’s 2% goal may matter less than the total bill. Families that devote a larger share of their income to food, rent and utilities — categories still rising faster than the overall index — can experience a higher effective inflation rate than the national average.

What comes next

The next reading on consumer prices, covering March, is scheduled for release April 10. That report will be the first to fully capture the impact of higher crude oil on gasoline, fuel oil and other energy costs, and could show whether the recent war‑related surge in prices is feeding into other parts of the economy.

If oil prices retreat quickly, the February data may mark a durable step toward price stability. If they remain elevated, the seemingly calm 2.4% reading could stand out in retrospect as a brief soft‑landing moment before the latest global shock reshaped the inflation landscape again.