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The latest consumer price index (CPI) figures confirm that US inflation picked up pace last month, with the headline rate jumping from 2.4% in February to 3.3% in March, according to the Bureau of Labor Statistics.
On a monthly basis, prices increased 0.9%, in line with forecasts and marking the largest such gain since 2022. Core inflation, which excludes food and energy, advanced more modestly to 2.6% year-on-year from 2.5%, while monthly core prices rose 0.2%.
The figures, which exceeded economists’ expectations in some areas but were also below certain forecasts, highlight the immediate economic fallout from geopolitical tensions in the Middle East.
US gas prices soared roughly 20% during March amid disruptions to global oil supplies, sapping household spending power and raising the prospect of slower economic growth in the short term.
At the pump, nationwide averages reached levels not seen in years, forcing many Americans to rein in spending.
Inflation is driven primarily by surging energy costs linked to the ongoing Iran war, and the increase arrives at a critical juncture for the Federal Reserve as it weighs its next steps on monetary policy.
Implications for Federal Reserve policy
Prior to the data release on Friday, Mary Daly, president of the San Francisco Federal Reserve and a member of the Federal Open Market Committee (FOMC), had signalled that the uptick would come as little surprise.
“A high CPI reading will not be a surprise to anyone,” Daly stated.
“If the Iran conflict resolves quickly and oil prices come back down, a rate cut is not out of the question,” she added while stressing that “the real question is whether the ceasefire persists, and if it does, the CPI will be old news”.
The CPI figures present a nuanced picture for policymakers.
While headline inflation has moved further from the Fed’s 2% target, the relatively tame core reading suggests the spike is largely energy-driven and potentially temporary.
With a fragile ceasefire now in place between the US and Iran, officials will be watching closely to see whether oil prices ease in coming weeks.
The next FOMC meeting is scheduled for 28-29 April, when the committee will assess whether to hold its key interest rate steady or signal any shift in outlook.