Surging energy prices triggered by the war with Iran pushed annual inflation in March to its highest level in nearly two years, the U.S. Bureau of Labor Statistics reported Friday.
The Consumer Price Index rose 0.9% on a monthly basis — the biggest monthly jump since 2022 — and 3.3% on an annual basis, with energy costs leading the way. Gasoline prices spiked 21.2% and fuel oil prices rose 31% from February to March as the closure of the Strait of Hormuz and worries about the destruction of energy infrastructure throughout the Persian Gulf sent global oil prices sharply higher.
Core inflation, which ignores volatile food and fuel prices to provide a better sense of the underlying trend, was more muted, though still above the Federal Reserve’s 2% target rate. Core CPI rose 0.2 on a monthly basis and 2.6% on an annual basis, better than expected. Some categories of goods seeing price increases, such as airline tickets, are closely connected to the energy market, with jet fuel prices more than doubling since the start of the war.
White House plays up the positive: The White House tried to put a positive spin on the data, with President Trump’s top economic adviser Kevin Hassett telling Fox Business News that egg prices are down 44% over the last year.
At the same time, White House spokesperson Kush Desai seemed to recognize that the war in the Middle East is causing economic pain for the American people. “President Trump has always been clear about short-term disruptions as a result of Operation Epic Fury, disruptions that the Administration has been diligently working to mitigate,” he wrote on social media. “Although gas and energy prices are seeing volatility, prices of eggs, beef, prescription drugs, dairy, and other household essentials are falling or remain stable thanks to President Trump’s policies.”
Democratic Sen. Elizabeth Warren pointed the finger directly at Trump, saying that “every family struggling to fill their gas tank or buy groceries knows exactly who is responsible.”
What the analysts are saying: While the relatively tame core inflation numbers suggest that the overall economy has largely escaped damage from the Iran war so far, even though it’s hitting consumers at the gas pump, analysts warn that it is only a matter of time before soaring energy costs ripple through other sectors, pushing up prices for all kinds of goods.
RSM Chief Economist Joseph Brusuelas said Friday that the energy shock will likely play out in two waves. “The first was in March, which showed up inside the energy complex, and the second will follow in April and beyond in the broader transportation, travel, food and service categories,” he wrote in a research note.
“The size of the energy shock is such that businesses and households should not anticipate any near-term relief,” Brusuelas added. “The price shock will be with all of us for the rest of the year.”
Although the size and duration of the coming inflationary wave remain to be seen, most analysts agree that the April numbers will be worse. “It’s painful in the near term,” said Michael Pearce, chief U.S. economist at Oxford Economics, per the Associated Press, adding, “It’s going to get more painful in April.”
Still, Pearce said he doubts that the inflationary wave will last. “I think the conditions are much more like a short, sharp shock than what we saw in 2022,” he said, referring to the time when Russia’s invasion of Ukraine caused a spike in energy prices.
Olu Sonola, head of U.S. economics at Fitch Ratings, emphasized that the price increases will be widespread and hard to avoid. “You are going to see those surcharges start to appear in bills, and people pay attention to those,” Sonola said, per Bloomberg. “It’s not only airfares, it’s not only luxury travel or this or that. It’s about the things that you buy on a day-to-day basis really moving higher.”