A surge in gas prices, driven by conflict, contributed to a rise in US inflation to 3.3% in March, representing the quickest annual rate in almost two years, according to new data from the Bureau of Labor Statistics released on Friday. On a monthly basis, prices increased by 0.9%, which is three times the 0.3% rate observed in February, a month when inflation stood at 2.4%, according to the most recent Consumer Price Index data. Gasoline prices, which surged a historic 21.2% in the month, represented almost three-quarters of the total monthly increase. Prices were anticipated by economists to rise by 0.9% compared to the previous month, with the annual rate projected to increase to 3.4%, as reported. The repercussions of the Iran war, which commenced in late February, have rapidly hindered advancements in inflation, while exacerbating persistent issues related to affordability. Wage gains for Americans, which had been exceeding inflation by approximately one percentage point for nearly three years, were swiftly eroded in March. When adjusted for inflation, average hourly earnings experienced an annual growth rate of 0.3% in March, a decline from the 1.3% observed in February.
“It’s going to get a lot worse before there’s any relief,” stated Heather Long during an interview. “Even if the conflict with Iran concludes in two weeks, and a miraculous agreement is reached, inflation will persist in its upward trajectory for several months ahead. Prior to the report, analysts anticipated that increases in prices might manifest in sectors such as airline fares, transportation expenses, and even food items. The respective gains were less pronounced than anticipated, with overall grocery prices declining by 0.2% in March. Excluding the more volatile categories of gas and food, core CPI experienced a 0.2% increase in March, consistent with the growth rate observed in the previous month. On an annual basis, that closely monitored index of underlying inflation increased by 2.6%, up from 2.5% in February. “We haven’t seen it come through with food yet, in airfares – those are clearly going to go higher – and in transit costs,” Long added. “It is merely a question of time.” The ceasefire established earlier this week alleviated certain concerns regarding the potential escalation of the conflict, suggesting that a resolution may be achievable in the near term.
Nevertheless, uncertainty persists, along with the possible inflationary consequences. Inflation is anticipated to pick up pace in the upcoming months as the repercussions of the war extend beyond gas prices, affecting a range of frequently purchased goods and certain services. Prior to the onset of the war, inflation was already above typical levels, sustained by price increases linked to tariffs on goods and, to a lesser degree, robust consumer demand for services. “There are fast-moving and slow-moving effects of an oil price shock, and some of those effects … aren’t there yet,” stated Tyler Schipper in an interview. “The good news is that with a shock like this, there’s no reason to suspect that this reignites a surge in inflation,” he added. “The unfavorable development is that consumers ought to anticipate further cost escalations across various categories.”
The inflation associated with tariffs remains present. The recent oil price shock has been added to the existing challenges. “We almost forget the tariffs, because we’re all paying attention to the gas, but it’s a good reminder that part of the issue here is we’re piling on top of what was already rising,” noted Long, an economist. The price of toys, a category significantly dependent on imports, rose by 2.3% in March, marking the most substantial monthly increase in almost five years. Tools and hardware experienced a 1.4% uptick, the highest since October 2022, while the cost of vehicle servicing also climbed by 1.4%, the largest rise since September 2022.