In March, inflation rates in the United States experienced a significant increase, attributed to the ongoing conflict involving the US and Israel against Iran. According to data released on Friday, prices rose by 0.9% from the previous month and 3.3% over the past year.
This rise in the consumer price index (CPI), which tracks the cost of various goods and services, marks the most substantial increase in nearly two years and serves as the first official indication of how the conflict has influenced consumer prices in the US. This is particularly relevant as Iran has restricted access to the Strait of Hormuz, a crucial waterway through which approximately 20% of the world’s oil and gas transit.
The energy index surged by 10.9% in March, driven primarily by a remarkable 21.2% jump in gasoline prices, which constituted nearly three-quarters of the total rise in the CPI for the month. Additionally, airfare prices climbed by 2.7% in March, reflecting a 14.9% increase compared to the same period last year.
Core inflation, which excludes the more volatile food and energy categories, saw a modest rise of 0.2% for the month and was up 2.6% year-over-year.
Since the summer of 2024, the annualized inflation rate had not exceeded 3%, following a period of decline after reaching a peak of 9.1% in June 2022.
The conflict with Iran has intensified economic uncertainty in the US, compounding the instability that began with tariffs imposed by former President Donald Trump last year. Inflation had dipped to a four-year low of 2.3% in April, before rising to 3% in September, then decreasing again to 2.4% in January and February.
Following Trump’s announcement of a two-week ceasefire with Iran, oil prices temporarily decreased as Iran agreed to reopen the Strait of Hormuz during this period. However, even after the announcement, US crude oil prices remained approximately 10% higher than prior to the conflict and nearly 30% higher since the beginning of the year.
Recent statistics indicate that rising prices are also impacting producers. The US gross domestic product (GDP) growth for the last quarter of 2025 was revised down from an initial estimate of 1.4% to just 0.5%. Moreover, the price index from the Institute for Supply Management’s survey of managers recorded its most significant one-month increase in 13 years, climbing from 63 in February to 70.7 in March.
Consumer confidence has also declined, as revealed by the University of Michigan’s consumer confidence survey, which showed a 10.7% drop to its lowest recorded level. Survey director Joanne Hsu noted that many consumers attribute negative economic changes to the conflict with Iran.
Despite the adverse effects on prices and consumer sentiment, the labor market has demonstrated resilience, with employers adding 178,000 jobs in March and the unemployment rate dropping to 4.3%.
The combination of a strong labor market and increasing prices presents a challenging situation for officials at the US Federal Reserve as they deliberate on interest rate adjustments in light of the ongoing conflict. Raising interest rates could help mitigate inflation but may also destabilize the labor market and elevate unemployment levels.
Minutes from the Federal Reserve’s February meeting, released on Wednesday, revealed concerns among “many participants” regarding the prolonged impact of inflation, suggesting that rate increases may be necessary.
In response to soaring inflation in 2022, the Federal Reserve initiated a prolonged campaign of interest rate hikes, raising rates from near zero to a range of 5.25% to 5.5% by 2024. Currently, rates are set between 3.5% and 3.75%.
Bernard Yaros, the lead US economist at Oxford Economics, noted in a communication to investors that the Federal Reserve is likely to regard the energy supply shock as a temporary inflationary boost. He emphasized that the Fed will monitor for any signs of weakness in the job market, which typically lags behind energy shocks.
However, he cautioned that the upcoming CPI report is expected to show similarly strong results. Gasoline prices have continued to rise this month, contributing further to inflationary pressures. Additionally, a statistical anomaly linked to the government shutdown will dissipate, potentially adding another unusual upward push to April’s CPI. Furthermore, the energy price shock is anticipated to increasingly affect food and other core prices.
