As economists and consumers alike suspected, U.S. inflation surged in March as the overseas military conflict in the Middle East inflicted pain at the gas pumps and had a ripple effect on other everyday consumer items.
The consumer price index (CPI) rose 0.9% on a seasonally adjusted basis last month, the U.S. Bureau of Labor Statistics (BLS) reported Friday. By comparison, it increased 0.3% in February, which was tied for the largest monthly gain of the past year.
On a 12-month basis, CPI inflation increased 3.3%, the highest headline reading since May 2024. In February, annual CPI stood at 2.4%.
Core inflation, which strips out volatile food and energy prices, clocked in at a tamer 2.6% after registering a 2.5% annual gain in February. That represents a 0.2% month-over-month increase.
Economists polled by The Wall Street Journal had predicted headline CPI would be 3.3% and core CPI would be 2.7%.
As expected, war-driven oil supply shocks caused the energy component of the CPI to spike 10.9% month over month. Drilling down, all energy commodities surged 21.3%, gasoline prices rose 21.2% and fuel oil leaped 30.7%.
The BLS release noted that the energy index saw its largest monthly increase since September 2005, while the gasoline index exceeded any monthly increase since the series was first published in 1967.
Food prices were flat for the month after gaining 0.4% in February, though they were up 2.7% on a 12-month basis.
“Indexes that increased over the month include airline fares, apparel, household furnishings and operations, education, and new vehicles,” the BLS report stated. “Conversely, the indexes for medical care, personal care, and used cars and trucks were among the major indexes that decreased in March.”
In commentary emailed to Scotsman Guide on Thursday, Cotality Chief Economist Selma Hepp anticipated that the CPI numbers wouldn’t be pretty.
“The average American family is reeling, with prices rising in many spending categories,” Hepp wrote. “The conflict in Iran has driven fuel costs much higher, while consumers are still facing higher prices due to tariffs.”
The Cotality economist added: “Relief will be long in coming, as the price of gas tends to shoot up like a rocket and then comes down slowly like a parachute. With geopolitical risks on shaky grounds, inflation is likely to stay firmer for longer, pushing rate cuts further into the back half of the year.”
The Federal Reserve next convenes on April 28-29 to determine the course of interest rates. With Fed officials voicing inflation concerns even before the CPI release, the central bank is widely expected to hold rates steady.
Investors are growing increasingly pessimistic that the Fed will cut rates at all this year. Futures contracts tracked by CME FedWatch show traders are now betting that the next reduction to the benchmark federal funds rate won’t come until the summer of 2027.
