Iran's Oil Price Spikes Keep Inflation, Interest Rates in Play
A sudden spike in oil prices due to diplomatic tensions between Washington and Tehran has kept US inflation at 3.5% year-over-year, unchanged from the prior month.
The consumer price index was higher than economists' forecast of 3.4%, but the key takeaway is that the trajectory of inflation had been bending towards a rate increase for the Federal Reserve, only to be flattened by this external shock.
Core inflation, which strips out volatile food and energy components, appears to have eased slightly to around 2.5% from 2.6% in the prior month.
The Fed's more cautious members are arguing that the Iran rupture was sudden, and oil markets often reverse quickly as they moved. Crude climbed 20% on diplomatic pessimism, and if talks restart, oil prices could retrace within weeks.