Khaberni - Inflation remained notably high last month in America with rising gas prices, although this data reflects the status of consumer prices before the US-Israeli attack on Iran, which led to a sharp increase in energy costs.
The US Department of Labor reported on Wednesday that consumer prices rose by 2.4% in February compared to last year, recording the same rate of increase as in January.
Excluding the volatile prices of food and energy, core prices increased by 2.5% compared to last year, also recording the same level as in January, which was the lowest in five years. Both rates are still higher than the Federal Reserve's target of 2%.
The conflict that started with the US-Israeli attack on Iran on February 28 dominated Wednesday's data, causing sharp fluctuations in oil prices with a rare halt to navigation. Gas prices jumped sharply, and it is expected that this will lead to a general increase in costs. Inflation data for this month will be published in early April.
The rise in prices will challenge the Federal Reserve's inflation-fighting efforts, and may lead to a slowdown in discretionary spending, which accounts for two-thirds of the country's economic growth.
If the war ends soon, prices may decrease, as hinted by President Donald Trump. But rising oil prices threaten to worsen inflation for at least several months, as Americans have been experiencing a sharp increase in costs for nearly 5 years. Affordability has become a critical political issue for Republicans in Congress as midterm elections approach later this year.
Prices increased by 0.3% monthly in February compared to the previous month, after having increased by 0.2% in January. If this increase continues for a long time, it will push annual inflation higher. Core housing prices only increased by 0.2%, after having risen by 0.3% in January.
According to Associated Press, Wednesday's report showed some positive signs, with inflation in rents dropping to just 0.1% monthly, the lowest level in five years. Meanwhile, prices for new cars stabilized in February, and used car prices dropped by 0.4%.
But food prices rose at a faster pace than in January, negatively impacting family budgets. They increased by 0.4% in February, and by 2.4% compared to last year. Gasoline prices increased by 0.8% last month, although they declined by 5.6% compared to last year. Clothing prices jumped by 1.3% in February alone, likely due to tariffs.
Laura Rosner-Warburton, chief economist at Macro Policy Perspectives, said: "Before the energy shock, the consumer price index trends were relatively quiet." She warned that the Federal Reserve's preferred inflation gauge, which gives less weight to items with decreasing prices such as rents, is likely to be higher when it is announced next Friday.
She added that fuel prices are on track to increase by 20% this month, "which is a huge increase." She estimates that monthly inflation may rise by up to 0.9% this month, the highest level in four years.
Oil prices, which had risen to nearly $120 a barrel by late Sunday, dropped to $87 by Wednesday, after Trump indicated that the conflict would be "a short-term adventure." However, he threatened more attacks, with no signs of reducing tensions.
Companies, preparing for rising energy costs, face numerous challenges including tariffs, inflation, and rising labor costs. Many of them are still trying to avoid passing these costs onto consumers, but much depends on the duration of the war.
The CEO of "Fifth and Emery," a yogurt and chocolate artisanal shop in Kansas City, Isaac Lee Collins, said that rising gas prices will make doing business more expensive.
The price of chocolate he imports from France has increased between 15% and 20% last year, primarily due to tariffs. Collins added, "It's just an additional cost we will bear."
The CEO of "Stew Leonard's" chain stores, Stew Leonard Jr., fears that his suppliers will start raising prices with the rise in gasoline prices. He receives trucks daily loaded with fresh meats, vegetables, and fruits.
He said: "He's an ordinary man with a family, and if his truck's fuel cost increases, he will knock on my door and say: 'Hello Stew, I need more money'."
He noted that if the cost of doing business at "Stew Leonard's" increases, the prices of some goods might rise.
Some analysts warn of sharply rising oil and natural gas prices if the closure of the Strait of Hormuz continues. About 20% of the world's total oil and natural gas passes through this narrow waterway daily. On Wednesday, a projectile struck a Thai cargo ship off the coast of Oman, headed towards the Strait of Hormuz, causing it to catch fire.
According to Wood Mackenzie, an energy analytics firm, oil prices could reach $150 per barrel in the coming weeks if shipping operations do not resume.
The average price of a gallon of regular gasoline in the United States jumped to $3.58 on Wednesday, according to the American Automobile Association (AAA), an increase of about 20% in just one month.
Core prices will be less affected this month, but they may gradually rise over time, as rising gasoline prices lead to increased costs of airfares, shipping, and other transportation expenses.
Darren Rebelez, CEO of Casey General Stores, told investors Tuesday that he does not expect a significant decrease in consumer spending unless gasoline prices approach $5 per gallon.
Even if these price increases are temporary, they are almost certainly going to delay any interest rate cuts by the Federal Reserve, which meets next week. The council had earlier cut the main interest rate three times last year before keeping it unchanged at its last meeting in January.
The Federal Reserve Board is already sharply divided on whether to keep the interest rate at its current level of about 3.6% to reduce inflation towards its target of 2%, or whether it should lower it to support borrowing, spending, and employment.
On the past Friday, the government announced unexpected sharp job losses for February, as employers cut 92,000 jobs. The unemployment rate rose to 4.4%.
The weak jobs report puts the Federal Reserve in a very difficult position: it usually cuts interest rates to stimulate growth and employment, but it often raises them – or at least keeps them at their current levels – if inflation is a concern.
Austin Goolsbee, president of the Federal Reserve Bank of Chicago, said in a statement to Bloomberg on Friday: "This is the worst possible scenario for the central bank. And with increasing uncertainty, I think the right time to act keeps getting delayed."
