US Inflation Rate Accelerates to 3.3% in March Amid Global Energy Market Disruption

Inflation Hits Four-Year High as Oil Prices Surge

The U.S. consumer prices increased by 0.9% in March, the largest rise in nearly four years, as the war with Iran led to a record surge in the cost of gasoline and diesel. This development has dealt a significant blow to President Donald Trump, whose approval ratings have been falling due to dissatisfaction with his handling of the economy.

The Consumer Price Index (CPI) report from the Labor Department on Friday showed that the underlying measure of inflation, which excludes volatile food and energy components, rose moderately last month. However, economists noted that this was largely due to the fact that March's data only captured the immediate effects of the oil price shock. As a result, the benign core CPI readings offer little comfort to officials at the Federal Reserve.

Despite a sharp rebound in job growth last month, which suggested the labor market remains stable, the recent inflation surge has left economists expecting the Federal Reserve to maintain interest rates this year. The report follows a sharp increase in job growth, which was fueled by a rebound in the labor market.

The CPI rose 0.9% in March, the largest increase since June 2022, when prices soared in response to the Russia-Ukraine war. Consumer prices rose 0.3% in February. The sharp increase in gasoline prices accounted for nearly three quarters of the monthly increase in the CPI, with a record 21.2% jump in gasoline prices. Other motor fuels, including diesel, soared 30.8%, the largest rise since the government started tracking the series.

| CPI Increase | Year-over-Year CPI | | --- | --- | | 0.9% (March) | 3.3% (12 months through March) | | 0.3% (February) | 2.4% (February) |

The U.S.-Israeli war with Iran has sent global crude oil prices surging more than 30%, with the national average retail gasoline price breaking above $4 a gallon for the first time in more than three years. Despite Trump's announcement of a two-week ceasefire on the condition that Tehran reopen the Strait of Hormuz, the truce appears fragile.

In the 12 months through March, the CPI advanced 3.3%, after rising 2.4% in February. Economists polled by Reuters had forecast the CPI accelerating 0.9% and increasing 3.3% year-on-year. Concerns remain that a prolonged conflict in the Middle East could undercut the labor market, especially if households respond to high prices by pulling back spending.

The recent surge in prices has underscored the affordability challenges facing consumers. Trump's promise to lower prices has been put to the test, and food prices remained unchanged after rising 0.4% in February. Stocks on Wall Street were higher, the dollar fell against a basket of currencies, and U.S. Treasury yields rose.

Excluding the volatile food and energy components, the CPI rose 0.2% last month after climbing 0.2% in February. Increases in rents, airline fares, as well as apparel and household furnishings and operations due to tariffs were blunted by a decline in the prices of used cars and trucks. This translated to a year-on-year increase of 2.6% in the core CPI, which is expected to accelerate in April as the secondary effects of the oil price shock filter through.

The Federal Reserve tracks the Personal Consumption Expenditures price indexes for its 2% inflation target. Those measures posted strong monthly gains in February. Both core CPI and PCE inflation have been driven by businesses passing on some of Trump's broad tariffs to consumers, offsetting the disinflationary trend in rents.

In the months ahead, economists expect the Middle East conflict to lift core prices through expensive jet fuel that will raise airline fares, and diesel, which will increase the cost of goods transported by road. Prices of fertilizer and plastics, among other goods, are also expected to rise. Firming inflation has left some economists believing the Fed will not reduce borrowing costs this year, a conviction reinforced by the release of minutes from the central bank's March 17-18 policy meeting.