March 16, 2026 – Recent U.S. data offer some encouraging signs: February CPI held steady, small-business pricing plans cooled, and one-year inflation expectations fell. Housing policy also moved forward as the Senate advanced a major affordability bill. Still, the outlook remains clouded by uncertainty from the Middle East conflict, which is already lifting energy prices and could reaccelerate inflation. January housing starts were strong, but softer permits point to ongoing constraints from high costs and limited affordability.  

Consumer inflation shows steady growth before Iran conflict: Consumer prices recorded in February were in line with consensus expectations and the annual growth rates were unchanged from January. Last month’s headline Consumer Price Index (CPI) increased 0.3% from the prior month and climbed 2.4% from the same month last year, while core CPI climbed 0.2% month-over-month and rose 2.5% year-over-year. Inflation remained steady partly due to slow growth in shelter cost, as primary rents climbed 0.1% from January 2026, the smallest gain since January 2021. Energy and food continued to put pressure on prices though, as energy prices rose 0.6% while food prices increased 0.4%. Oil and gas prices were already climbing in anticipation of the Iran conflict and have jumped nearly 25% since the war started. As such, inflation could turn upward in coming months if the geopolitical tension remains unresolved or heightens further. Despite inflation being steady in February, the latest CPI report is likely already outdated for the Fed, as their focus has shifted towards the developing conflicts in the Middle East and the impact the outcome has on inflation and the broader economy.  

Consumers improve on inflation expectations but remain worry about the job outlook: Inflation expectations at the one-year ahead horizon declined for the second straight month, and the median slid back down to the level last seen in June 2025, according to the New York Fed’s Survey of Consumer Expectations. Survey respondents in February 2026 collectively expected inflation 12 months from now to reach 3%, the lowest level in eight months. While there are indications that some of the import duties’ burden will be passed on to consumers, most of tariffs-induced price increase might have already taken place. The inflationary pressure inflicted by last year’s tariffs, as such, could be winding down in coming months. With the ongoing Iran war pushing energy prices higher in recent weeks though, expectations of higher prices in the short-term could bounce back in the months ahead. Meanwhile, consumers’ perceptions and expectations about their job outlook improved slightly, with the mean perceived probability of losing one’s job in the next 12 months dipping by one ppt to 13.8% last month. On the other hand, the odds of finding a job in the next three months if one’s current job were lost also declined by 1.6 ppts to 44% in February, just slightly above the series low reached in December 2025. With the war in the Middle East posting new concerns about the economic well-being of the U.S., consumer expectations will likely be negatively impacted in the coming months.

Small business optimism dips as sales outlook weakens: The NFIB Small Business Optimism Index slipped for the second consecutive month in February to 98.8 but remained above the 52-year average of 98. While more business owners reported higher nominal sales in the past three months, leading to a 7-point increase from January, the net percent of owners expecting higher real sales volumes dropped eight points (pts) from the prior month in February. The Uncertainty Index, on the other hand, reversed its direction from the previous month and declined three points from January. The index could resume its upward trend in March, however, as the February survey responses were collected prior to the onset of the Iran war. Business owners who raised their average selling prices in February were down 2 pts from the prior month, and the net percent of owners who plan to increase prices in the next three months also dipped 4 pts from January, which is an encouraging sign for the inflation outlook, at least from the consumer perspective. As the tax filing deadline is quickly approaching, it is not a surprise to see that almost one out of five (19%) of the respondents cited taxes as their single most important problem. Other top issues that were mentioned include government regulation and red tape (10%) and the cost or availability of insurance (9%).    

U.S. Senate passes major housing affordability bill: The U.S. Senate passed the largest piece of housing legislation in 36 years last Thursday, as Republicans and Democrats banded together to tackle a major cost-of-living issue just months before midterm elections in which affordability is expected to be a main focus. The 21^st Century ROAD to Housing Act creates a series of grants and pilot programs that aims to boost the supply of new housing. The legislation seeks to bring housing costs down by removing regulatory barriers, providing incentives, and preserving the existing supply. It would also set new limits on the role institutional investors play in the single-family housing market, a provision that is in line with the executive order signed by the President earlier this year. The package now moves to the House, where it faces opposition from members of both parties.

Housing starts kick off the year strong but permits tell a different story: U.S. housing starts continued to rise for the third straight month, with multifamily surging sharply month-over-month while single-family pulled back slightly to start the year. Total housing starts at the national level surprised to the upside in January with a monthly increase of 7.2%, primarily because of a 29.9% jump in multifamily. The overall picture for residential construction, however, is not as rosy though, as single-family starts declined 2.8% in January and total permits dropped 5.4% to the lowest level in five months. Elevated construction costs and constrained affordability conditions remain the culprit for the weakness in housing construction. At the regional level, housing starts surged on a monthly basis in the Northeast (47.4%) and the South (7.5%), but building activity dipped in the Midwest (-10.8%) and the West (-7.5%). 

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