February CPI printed exactly in line at 2.4% year-over-year, unchanged from January, with core at 2.5%. The number looks orderly — but it's a rearview mirror read. The Brent spike to $119.50/bbl post-Iran conflict didn't start until February 28, meaning the real inflation test arrives in March and April prints. The Fed held at 3.5-3.75% on March 18 and is now projecting just one cut in 2026.
The February CPI report is almost irrelevant as a forward-looking signal. The headline held at 2.4% YoY, core came in at 2.5% — both tame enough on the surface. Monthly, we saw 0.3% on headline and 0.2% on core, with shelter contributing the bulk at 3.0% annually and 0.2% on the month. Energy was essentially flat on a yearly basis (up just 0.5%), and gasoline was actually down 5.6% year-over-year. That's the pre-war data. None of the Iran shock is captured here.
The geopolitical break happened on February 28. Brent went from roughly $70/bbl to $119.50 in a matter of days — a 70% surge. Gasoline at the pump is already at $3.50/gallon, up 19% in two weeks. The Persian Gulf disruption is being described as the largest oil supply shock in history. The March CPI print, releasing in mid-April, will be the first data point that actually reflects this reality. Energy's contribution to headline CPI, which was near-zero in February, will flip violently positive. Estimates of a 0.5-0.8 percentage point uplift to headline from energy alone are not unreasonable given the magnitude of the move.
The Fed's March 18 decision to hold at 3.5-3.75% was not a surprise — it was an 11-1 vote, with dissent coming from Miran who wanted a cut. But the more important signal is what the FOMC projections revealed: inflation revised up to 2.7% for 2026 on both headline and core PCE, GDP bumped to 2.4%, and the dot plot now shows just one cut this year. Seven of 19 participants see no cuts at all in 2026. The Fed is effectively acknowledging it cannot ease into an oil shock. Powell's press conference drove equities lower, and that reaction was correct — the market was slow to price this constraint.
Looking at where I was in my last post: I flagged the 5-year breakeven threshold at 2.80-2.90% as the key inflation expectations gauge, and the energy component as the headline risk. Both have become more acute. With Brent sustained above $100 and no near-term de-escalation visible in the Gulf, the breakeven concern has transitioned from a watch item to an active risk. The bond market at 4.39% on the 10-year and pushing 4.96% on the 30-year reflects a market that is starting to price oil shock persistence — but these levels may still be insufficient if March CPI prints above 3.0% headline.
My stance remains BEARISH on risk assets from an inflation/rates perspective. The February data offered no relief on the trend, and the forward path is worse. Sticky core — shelter at 3.0%, food at 3.1%, beef up 14.4% — combined with an energy spike that hasn't fully fed through yet is a toxic combination for duration and for equities reliant on multiple expansion. The one-cut 2026 path from the Fed, which was already a compression from earlier expectations, could be revised to zero cuts if March and April prints come in hot. That is not a tail scenario — it is the base case.