Distortions due to government shutdown weigh on CPI

March 11, 2026

The six-week government shutdown caused a lapse in data collection, which hit the consumer price index (CPI) particularly hard. Many cells for prices in October were zeroed out during the month, including the largest single component – shelter costs. That is holding year-over-year measures of the CPI down and providing a distorted view of the inflation situation. 

The CPI rose 0.3% in February, a slight acceleration over January. That translates to a 2.4% increase from a year ago, the same as we saw in January. A better measure of the shifting momentum in inflation is the three-month annualized pace. That measure rose to 3.2% in February, bringing us to pre-shutdown level, which is that last clean measure on that basis that we have. 

Energy prices accelerated across the board – more to come given ongoing disruptions to the Strait of Hormuz. Harsh winter weather contributed to those increases. Gasoline rose 0.8% after falling in January. Fuel oil prices soared 11.1%.%, one of its fastest monthly increases on record. Those costs spill over into other transportation costs and will show up at the grocery store as well. Electricity prices were more muted. They will not stay there.

Food prices rebounded after a lull in January. Prices at the grocery store moved up faster than at restaurants. Meat prices are still rising, but pork and eggs have moderated, along with some fruit and vegetable prices. Most importantly, eggs, which are a primary source of protein for low-income households, have continued their descent. Stocks of chickens are recovering after an Asian flu outbreak last year.  

Many dining establishments are facing a huge margin squeeze in what is already a tough cost environment. Consumers have fee fatigue. They are short of pennies, although the Federal Reserve has started to circulate pennies again to help with the transition away from the coin. 

Shelter costs, which account for more than a third of the index, remained subdued. Some of that is due to the loss of data in the government shutdown, but there has been a substantial cooling in both home values and rents. The latter is expected to place a drag on inflation this year and is due for revisions in April.  

The core CPI, which excludes food and energy, rose 0.2%, which is a tick slower than we saw in January.  That translates to a 2.5% increase in inflation from a year ago, the same as January. The three-month annualized pace reached 2.8%, which is slightly cooler than last September largely due to the slowdown in shelter costs. That component plays a smaller role in the PCE index of inflation, which the Fed targets.

Core goods prices, which take out energy and vehicle costs, rose 2.1% from a year ago. That is the fastest pace since July 2023. The three-month annualized pace rose 3.4%, which is the highest since July 2025. Apparel prices alone surged 1.3%, the fastest monthly increase since October 2021. That reflects a catch-up in tariff hikes, despite some signs of cost-sharing from suppliers abroad. Vehicle producers and dealers have absorbed nearly all of the tariffs to date. That margin compression showed up as layoffs instead. 

The super core services measure, which strips energy and shelter costs, jumped 0.4% in February after rising 0.6% in January. That translates to a 2.8% gain from a year ago, up a tick from January. The three-month annualized pace was up a searing 4.8% from 3.6% last month. That is stunning and suggests that the inflation we are dealing with goes well beyond supply shocks due to tariffs.

Medical care services jumped 0.6% during the month, double the pace of January. Gains in home healthcare, dental and hospital drove those gains. The rise in home care, which is heavily dependent upon immigrant labor, soared 2.3% alone. That translates to a stunning 15% increase from a year ago, its fastest pace on record. Aging demographics are colliding with curbs on immigration. The stress of providing unpaid elder care is showing up as missed hours work across every sector of the economy. 

Other services were worrisome as well. Air fares, hotel room rates and motor vehicle maintenance and repairs saw outsized gains during the month. Those service sector prices carry a larger weight in the PCE index, which the Fed targets. That is expected to come in hot again for January, with data released later this week. Today’s data and the shifting landscape in the Middle east suggest that February and March will be worse.

Why are these technical details so important? Because they suggest that the Federal Reserve has a larger problem than tariffs or a temporary spike in oil prices. Service sector inflation is being driven by a multitude of factors, including a shortage of workers in some pockets.  

Those shifts, coupled with the supply chain disruptions due to the closure of the Strait of Hormuz, are compounding. More than oil traverses those waters and supply chains are being roiled around the globe. We learned during the pandemic that production is easier to idle than restart, which will add to scarcities. 

Consumers can blunt the initial blow of those higher prices via fiscal stimulus, which is showing up in as a surge in tax refunds. That combination humbled the Fed during the pandemic. We do not have the job creation we did back then, nor do we have the workers. Caution on viewing the inflation as transitory is warranted.