Energy-driven inflation spike

U.S. consumer prices jumped 0.9% in March, the biggest monthly rise since 2022, as gasoline costs surged after the Iran war hit energy markets. (bls.gov) The Labor Department said the Consumer Price Index was up 3.3% from a year earlier in March, after a 0.3% monthly increase in February. Gasoline prices rose 21% in a single month, driving more than half of the March increase in the overall index. (bls.gov) Core inflation, which strips out food and energy, rose 0.2% in March and 2.6% from a year earlier. That left the sharp headline spike concentrated in fuel even as underlying prices kept rising at a slower pace. (bls.gov) The March report was the first full inflation reading to capture the consumer impact of the U.S.-Israeli attack on Iran and the oil disruption that followed. Axios reported that the gasoline jump was the largest monthly increase in 59 years of records. (axios.com 1) (axios.com 2) Economists were already warning before the March report that inflation was picking up again, not fading back to the Federal Reserve’s 2% goal. Axios reported that price pressures had been reaccelerating in recent months even before the energy shock from the Iran conflict. (axios.com) That matters for interest rates because oil shocks can spread beyond the pump into shipping, air travel and food. Axios reported that higher fuel costs were already feeding into airline fares and were expected to push grocery prices higher in the following weeks. (axios.com 1) (axios.com 2) Households are starting to expect more inflation ahead. The New York Federal Reserve said on April 7 that one-year inflation expectations rose to 3.4% in March from 3.0% in February, while expected gas-price growth hit its highest level since March 2022. (newyorkfed.org) Consumer sentiment also deteriorated as fuel prices climbed. The University of Michigan’s preliminary April survey showed year-ahead inflation expectations rising to 4.8% from 3.8% in March, while sentiment fell to 47.6 from 53.3. (sca.isr.umich.edu) Federal Reserve officials had already penciled in inflation above target before the March price spike. In projections released March 18, policymakers estimated core personal consumption expenditures inflation would end 2026 at 2.8%, above the central bank’s 2% goal. (federalreserve.gov) March’s inflation jump does not settle whether the surge will last, but it ended any near-term claim that price growth was back under control. The next test is whether energy costs stay elevated long enough to pull the rest of the economy higher with them. (bls.gov) (axios.com)