US inflation rises 0.4% in February; strong spending, oil shock may delay rate cuts

US inflation rose in line with expectations in February, with further upside risks emerging from the Iran war, a trend that could delay interest rate cuts by the Federal Reserve, Reuters reported.The personal consumption expenditures (PCE) price index –the Fed’s preferred inflation gauge– increased 0.4% in February after a 0.3% rise in January, data from the Commerce Department’s Bureau of Economic Analysis (BEA) showed. On a year-on-year basis, inflation stood at 2.8%, unchanged from January.Core PCE inflation, which excludes food and energy, also rose 0.4% for the third straight month, while the annual rate eased slightly to 3.0% from 3.1%.The data comes against the backdrop of rising geopolitical tensions and elevated global energy prices following the US-Israel conflict with Iran, which pushed gasoline prices above $4 per gallon for the first time in over three years.Economists said inflationary pressures are likely to intensify further in March as the fallout from the conflict feeds into energy and food costs, particularly with disruptions in shipments through the Strait of Hormuz.Minutes of the Federal Reserve’s March 17-18 policy meeting showed growing concern among policymakers about persistent inflation risks.“Participants noted that a prolonged conflict in the Middle East would likely lead to more persistent increases in energy prices and that these higher input costs would be more likely to pass through to core inflation.”The Fed has kept its benchmark interest rate in the range of 3.50%-3.75%, and expectations of rate cuts this year have diminished significantly amid sticky inflation.At the same time, consumer spending remained resilient, rising 0.5% in February after a 0.3% increase in January, supported partly by higher prices and strong demand.However, economists cautioned that elevated fuel costs could squeeze discretionary spending, even as tax refunds may provide some relief to lower-income households.The conflict-driven surge in oil prices and market volatility has already wiped out about $3.2 trillion in stock market value in March, raising concerns that higher-income households — key drivers of consumption — may start cutting back, potentially impacting broader economic growth.