[Just In] February US CPI: The Last Clean Report

Update 10:06 ET: All 32 IEA member countries unanimously agreed to make 400 million barrels of oil from emergency reserves available to the market… the largest coordinated reserve action in the agency’s history.

Separately, President Trump stated the war with Iran will end soon.

What Just Happened

The government released its monthly inflation report this morning. Prices rose 2.4% over the past year, unchanged from January. The ‘core’ number… which strips out food and petrol… came in at 2.5%. No surprise. Roughly what Wall Street expected.

The details were mixed. The good news: rents barely moved (the smallest monthly increase in five years), used car prices fell and car insurance dropped. These are the big items that have been keeping inflation high for years. They’re finally cooling.

The bad news: beef rose 1.5%, steaks rose 3.7%, cakes and cupcakes rose 4.4%. Clothes rose 2.5% year on year… the most in over two years. Furniture and appliances are at their highest since 2022. Tariffs are flowing through to shop shelves. Supply problems with metals and computer chips were building before the war even started.

On balance, the inflation trend was still improving. Slowly. Imperfectly. But improving.

The problem: this snapshot was taken in February. The war started at the end of February. Oil averaged $65 that month. It’s been swinging between $82 and $119 since. Petrol at the pump has jumped roughly 18% in two weeks. None of that is in today’s report. It hits the March and April numbers.

What Could Push Inflation Higher

Three pressures are building at the same time.

Energy - A common rule of thumb: every $10 rise in oil adds about 0.2 percentage points to inflation. If current prices hold, that’s 0.3-0.4 points of additional pressure in the next few readings.

Food - More than a third of the world’s fertiliser ships through the Strait of Hormuz. With that disrupted, farming costs rise and grocery prices follow. Some private estimates suggest this could add roughly 2 percentage points to food-at-home inflation if it persists.

Everyday goods - Tariffs are pushing up furniture, appliances and clothing. Chip shortages are lifting electronics. These pressures existed before the war and will persist even if oil drops back.

What Could Push Inflation Lower

Today’s IEA announcement is the biggest supply-side response since the war began. 400 million barrels from 32 countries, unanimously agreed. Implementation details and timelines will follow, with the release to occur at a pace appropriate to each country. This materially increases the probability of a supply backstop and places a ceiling on worst-case oil outcomes. But the actual impact depends on how quickly barrels reach the market. Think of it as the fire brigade arriving and confirming they have the water. Whether they put the fire out depends on how fast they turn on the hoses.

Trump’s statement that the war will end soon is directionally supportive if credible but a political statement is not the same as a ceasefire, restored shipping routes or normalised tanker insurance costs. It is a sentiment signal, not hard evidence of de-escalation.

Beyond the headlines - rents are still cooling (the biggest single item in the inflation basket), used cars keep falling, and if oil stays elevated long enough it acts as a tax on households… people spend less, the economy slows and inflation eventually comes down too.

The disinflationary path is not closed. It has become more contested. But today, the supply-side response is more visible than at any point since the war began.

What The Fed Will Do And What To Watch

Probably nothing. The Fed is stuck. Its preferred inflation measure (a different index called the PCE) is running around 3%… well above the 2% target. That makes it hard to cut rates. But the economy is also slowing. Real wages barely grew in February. Raising rates into an oil shock would risk recession. So the Fed sits tight and waits for clarity. If the war ends quickly and oil falls, the Fed may regain room to cut later. If the war drags on, that room narrows considerably.

The key question - Will higher oil act as a tax that slows spending or will it cause people to expect permanently higher prices? If the first, the problem solves itself as the economy cools. If the second, the Fed has a much harder problem. Today’s IEA action tilts the odds toward the first scenario. But it’s too early to call it settled.

Two things to watch. First, oil… not just the price but the volatility and the speed of the reserve release. If WTI settles in the $70-80 range over the next month, the inflation scare fades.

If it stays above $90, March and April get ugly.

Second, the breakeven inflation rate… the bond market’s collective bet on future inflation. It sits at 2.31%, meaning bond investors still think inflation will settle near the Fed’s target. It spiked during the initial Hormuz panic but retreated. If it starts climbing sustainably, the smart money is losing faith. That matters more than any single monthly report.

February’s snapshot was constructive but already stale. The war, the oil shock, the fertiliser disruption and the IEA’s historic response will shape the next few months far more than today’s data. The snapshot was taken before the fire started. Today, the fire brigade has shown up. Whether they put it out in time is the only question that matters.

Disclaimer: This note is not financial advice. It is one person’s attempt to make sense of a complicated day using publicly available data and too much coffee. The author is not a licensed financial adviser, does not manage your money and has no idea what your portfolio looks like. If you make investment decisions based on a market note written during supper time then that is entirely on you. Please consult a qualified professional before doing anything rash.

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