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Inflation Ticks Up in January, War in Iran Looms Over Economic Outlook
WASHINGTON – A key inflation indicator closely watched by the Federal Reserve showed an increase in January, signaling that elevated prices were a persistent concern even before the recent spikes in oil and gas costs triggered by the war in Iran.
The Commerce Department reported Friday that prices rose 2.8% in January compared to the previous year. This figure is slightly lower than December’s increase and comes from a report delayed by last fall’s six-week government shutdown, a backlog of data that is now largely resolved.
However, when excluding the volatile food and energy categories-which the Fed pays particularly close attention to-core prices climbed 3.1%. This marks an increase from the prior month’s 3% and represents the highest level in nearly two years.
On a monthly basis, overall prices saw a 0.3% jump in January, while core prices increased by 0.4% for the second consecutive month. If this pace were to continue, it would push inflation significantly above the Fed’s 2% annual target.
These recent figures have since been overshadowed by the war with Iran, which commenced on February 28. The conflict has led to the shutdown of the Strait of Hormuz, effectively cutting off one-fifth of the world’s oil supply.
Since the war began, oil prices have surged by over 40%, and gas prices have jumped to $3.60 a gallon from just under $3 a month prior, according to AAA. Economists predict these developments will likely cause inflation to spike further in March and potentially April.
In response to inflationary pressures, the Federal Reserve has maintained its key interest rate at an elevated level to slow borrowing, spending, and overall economic growth. Fed policymakers are scheduled to meet next week, and it is widely anticipated that they will keep their rate unchanged, acknowledging that the Middle East conflict will likely contribute to higher inflation, at least in the short term.