A key inflation measure remained stubbornly high in February, according to new economic data released Thursday, as analysts warned that escalating tensions with Iran could further disrupt global supply chains and price stability.
The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, showed prices rose 0.3% last month and 2.5% year-over-year – matching January’s increase and exceeding the central bank’s 2% target. Core PCE, which excludes volatile food and energy prices, climbed 0.4% monthly and 2.8% annually.
‘These numbers suggest inflationary pressures are proving more persistent than hoped,’ said a Treasury Department official speaking on background. ‘The situation bears close monitoring, particularly given recent developments in the Middle East.’
Economists note the data reflects conditions before Iran-backed Houthi rebels intensified Red Sea shipping attacks in March and Israel reportedly prepared strikes on Iranian nuclear facilities. Energy prices, which had stabilized in late 2023, have begun creeping upward again.
Market analysts warn any direct conflict between Israel and Iran could send oil prices soaring, potentially reigniting the inflation crisis that plagued 2022-2023. ‘We’re seeing the first signs of businesses rebuilding inventories and supply chains normalizing,’ noted a JP Morgan analyst. ‘A regional war could undo that progress overnight.’
The Fed faces renewed pressure to maintain higher interest rates longer than anticipated, with some economists now predicting no cuts before September. However, others argue tight monetary policy has already slowed growth sufficiently, pointing to recent declines in manufacturing activity and consumer spending.