Inflation appeared to once again be on the right track for the Federal Reserve’s 2% goal, according to the latest data from the Bureau of Labor Statistics (BLS). However, economists are feeling uncertain about whether the trend will continue as the economy faces potential fallout from geopolitical issues—most notably, the war in Iran.
The BLS’s Consumer Price Index (CPI) for February found that inflation in the all items index ticked up 0.3% month-over-month, putting annual inflation at 2.4%. This is the same annual inflation reading as in January, which Bright MLS Chief Economist Lisa Sturtevant characterized at the time as the “lowest level since last May.”
Data was gathered before the war roiled energy markets and disrupted supply chains, and did not take into account more tariffs announced by President Donald Trump after the Supreme Court struck down other import dues.
The monthly rise was largely attributed in the data to a 0.2% increase in shelter inflation. Jason Furman, an economics professor at Harvard, said in a thread on X that shelter inflation has “moderated less than people expected, but still moderated—with potentially more in store.”
Core inflation—which reads from the index for all items less food and energy—increased 0.2% month-over-month in February, putting annual core inflation at 2.5%. This is also the same annual core inflation reading as in January, which was characterized by Realtor.com® Senior Economist Jake Krimmel at the time as at its “lowest level since March 2021.”
Krimmel noted that while this month’s CPI reinforces a “‘drifting lower’ pattern, the real story is what’s not in February’s report.”
“Because this data window closed just as the new 15% global tariff threats were announced and more crucially before the Iran War and resulting oil and trade shock, we should think of this as an inflation floor for the coming months, not a sign of what’s to come,” he continued.
Krimmel explained that this CPI report “establishes the cleanest baseline we are likely to see before new price pressures form and grow this spring.”
Furman also noted that “one big issue monetary policymakers will have to wrestle with is how to handle the Iran-related inflation.”
“Normally it would be clear they should look through it and focus on (core inflation),” he continued. “But with 5 consecutive years of elevated inflation, they need to worry about expectations.”
Furman added that he expects “relatively little passthrough of the Iran situation into core inflation,” and that the amount “depends on the choices the Fed makes.”
Looking at what the Fed may take away from this report, Furman said that the Federal Open Market Committee’s (FOMC) stance most likely won’t change from the “wait and see” policy it has adopted, “with a high bar for an interest rate move.”
“This doesn’t bring us much closer or further from that bar,” he continued.
Some FOMC voters have said that the war has made the path of rate cuts more uncertain, while others argue there is still a case to be made for immediate decreases in rates.
In terms of the future ahead for the housing market, Krimmel said that the data is not necessarily the takeaway, but rather, the “all-too familiar sense of volatility and uncertainty.”
“A few weeks ago, mortgage rates had fallen to nearly 4-year lows, new listings were rising, and pending sales suggested pent-up demand might finally be responding to improved affordability. Now, it feels we could be headed toward a 2025 redux.”
Krimmel compared the current situation to what was seen last spring—geopolitical tensions, supply chain concerns and rising inflation—which could be enough to “stall momentum.”
“As we saw last year, the housing market is particularly sensitive to swings in confidence,” he concluded. “Even though today’s inflation data look benign, the question heading into spring is whether renewed uncertainty is enough to sideline buyers and sellers once again in 2026.”
