- Energy price surge amid Middle East conflict will boost inflation
- Core import prices rise 3.0% year-on-year, reflecting dollar weakness
- Imported capital goods see largest price gain since 1988
WASHINGTON, March 25 (Reuters) - U.S. import prices increased by the most in four years in February as energy costs surged in anticipation of conflict in the Middle East, adding to signs that inflation is poised to accelerate in the months ahead.
The larger-than-expected rise reported by the Labor Department on Wednesday also reflected strong gains in the prices of food and consumer goods. Imported capital goods prices logged their biggest increase on record, driven by an artificial intelligence investment and data center construction boom.
Economists said firming inflation even before the U.S.-Israeli war with Iran was likely to encourage the Federal Reserve to keep interest rates unchanged for a while. U.S. central bank officials have forecast only one rate cut this year, though financial markets see the odds of a reduction fading.
"It wasn't just an increase in fuel import prices but also non-fuel import prices," said Eugenio Aleman, chief economist at Raymond James. "The fact that non-fuel import prices increased so much is a wake-up call for policymakers and will keep the Fed on pause for longer than expected."
Import prices jumped 1.3% last month, the largest increase since March 2022, after an upwardly revised 0.6% gain in January, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast import prices, which exclude tariffs, increasing 0.5% after a previously reported 0.2% rise in January.
In the 12 months through February, import prices advanced 1.3%. That was the largest year-on-year increase since February 2025, and followed a 0.3% increase in January.
"Having not been a factor in the inflation story recently, import prices are beginning to be an issue ahead of the surge in fuel prices that is to be expected in March with the conflict with Iran and the effective closure of the Strait of Hormuz," said John Ryding, chief economic advisor at Brean Capital.
The government last week reported that producer prices increased by the most in seven months in February amid broad increases in services and goods.
A survey from S&P Global on Tuesday showed businesses paid more for inputs in March and asked higher prices for their goods and services, blaming soaring energy costs and supply chain disruptions. Oil prices have surged by more than 30% since the conflict started at the end of February.
Fertilizer prices have also increased, which will feed through to higher food inflation. The strain from the war is on top of import tariffs, which businesses continue to gradually pass on to consumers.
Stocks on Wall Street were trading higher amid reports of progress in peace efforts. The dollar was little changed against a basket of currencies. U.S. Treasury yields fell.
WEAK DOLLAR IS DRIVING UP IMPORT PRICES
Imported fuel prices rebounded 3.8% last month, the largest rise since April 2024, after dropping 1.2% in January. There were increases in the prices of petroleum and natural gas.
Food prices increased 0.8% amid rises in a range of goods, including vegetables, distilled alcoholic beverages, meat and oilseeds. Excluding fuels and food, import prices shot up 1.2%. The so-called core import prices rose 0.7% in January.
In the 12 months through February, core import prices accelerated 3.0%, partly reflecting prior dollar weakness against the currencies of the main U.S. trade partners.
The trade-weighted dollar declined 1.6% from the start of 2026 until the outbreak of the war in late February. It has regained some ground on safe-haven trades. The dollar depreciated 7.37% in 2025.
Prices for imported capital goods vaulted 1.3%, the largest gain since the government started tracking the monthly series in 1988. That reflected higher prices for computers, peripherals and semiconductors as well as industrial and service machinery, linked to AI and data center construction.
Economists said the size of the increase was likely a sign of capacity constraints in the capital goods industries. There is cautious optimism that increased productivity from AI would help to tame inflation in the long term. For now, economists expected price pressures to continue building up for a while.
"We look for the conflict to exert upward pressure on energy and food prices, and for its impact to seep into core prices," said Oren Klachkin, financial markets economist at Nationwide. "It will take time for recent U.S. dollar strength to mitigate upward inflation pressures, with past depreciation likely still putting upward pressure on imported goods for now."
Imported consumer goods excluding motor vehicles rose 0.5%, driven by higher costs for apparel, footwear and household goods. Prices for motor vehicles, parts and engines climbed 0.2%. But import air passenger fares fell 0.4% after declining 10.1% in January.
The prices of goods imported from China increased 0.5% in February, the largest advance since March 2022, but dropped 1.9% year-on-year. There were also increases in the prices of imports from Japan, the European Union and Canada. Prices for imports from Mexico fell 0.5%.
With the import, producer and consumer price reports in hand, economists' estimates for the core Personal Consumption Expenditures price index, one of the inflation measures tracked by the Fed for its 2% target, converged around a 0.4% increase in February, after rounding. That would translate into a year-on-year increase of 3.0%.
Core PCE prices increased 0.4% in January and advanced 3.1% year-on-year. The government will publish the delayed PCE inflation report for February next month.
"The Fed was already facing sticky core PCE inflation prior to the start of the latest Middle East conflict, which on the margin could encourage them to remain hesitant about cutting rates as long as the labor market holds up," said Abiel Reinhart, an economist at JPMorgan.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
Source: Reuters