Prices Were Already Stubborn Before the Iran War – Now the Pressure’s Building

With input from CNBC, CNN, FOX Business, CBS News, Business Insider, the Wall Street Journal, Market Watch, AP, and Forbes.

Inflation wasn’t cooling off heading into the Iran conflict. If anything, it was digging in.

Fresh data shows the Federal Reserve’s go-to gauge – the personal consumption expenditures index – stayed sticky in February. Core inflation, which strips out food and energy, rose 3% from a year earlier. The broader measure came in at 2.8%. Both landed right where economists expected, but still above the Fed’s 2% target.

On a monthly basis, prices climbed 0.4%. Not dramatic, but steady enough to keep policymakers uneasy.

This all happened before oil prices spiked.

That timing matters. The February snapshot offers a clean look at the economy just before the shock from the Iran war hit energy markets. Since then, oil has surged, gas prices have jumped, and economists are bracing for a fresh wave of inflation in the months ahead.

Under the surface, the picture isn’t especially comforting. Consumer spending rose 0.5% in February, a solid headline number. Adjusted for inflation, though, the gain shrinks to barely 0.1%. People are spending more, but mostly to keep up with higher prices.

Income isn’t helping much either. Personal income slipped 0.1% on the month, an unexpected drop that suggests households are starting to feel squeezed. The savings rate also ticked down, another sign that consumers are dipping into reserves to stay afloat.

There’s more. Economic growth at the end of last year was weaker than previously thought, with fourth-quarter GDP revised down to just 0.5%. Slower growth paired with stubborn inflation isn’t a great mix – the kind that starts raising quiet concerns about stagflation.

Some economists say the warning signs were already there. Inflation was firming. Income growth was soft. Then came the war, pushing energy costs higher and complicating the outlook even further.

What happens next hinges on how long those price shocks stick around. Energy costs tend to rise fast and fall slowly, and the ripple effects stretch well beyond gas stations – into food, travel, and everyday goods that rely on transportation.

The Federal Reserve is watching all of this carefully. Officials have been hesitant to commit to rate cuts, and this data doesn’t make that decision any easier. If inflation stays elevated – or climbs higher as expected – the central bank may stay on pause longer than markets had hoped.

For now, February looks like a calm before the storm. Prices were already running hot. The war just added fuel.