US consumer prices surged last month in an early sign that rising oil prices from the Iran war are weighing on the economy.
Data from the Labour Department showed Consumer Price Index (CPI) inflation rose 3.3 per cent on an annual basis in March, up from 2.4 per cent in February. While in line with expectations, it is the highest annual reading since March 2024.
On a monthly basis, headline inflation surged 0.9 per cent last month after a 0.3 per cent increase in February, the largest monthly gain in nearly four years. Rising energy costs largely account for last month's inflation surge.
The energy index rose 10.9 per cent last month, led by a 21.2 per cent increase for gasoline, which contributed to roughly three quarters of the monthly inflation increase. The Iran war has sent energy prices surging, with Brent crude prices up roughly 30 per cent since the conflict began in February.
"The fall-out of the US/Israel-Iran war was evident in the March consumer price index," said Bernard Yaros, lead US economist at Oxford Economics.
Rising energy costs are already being felt at the pump in the US, where the average price for petrol rose to more than $4 a gallon for the first time in nearly three years. Core inflation, which removes the volatile food and energy indexes, rose 0.2 per cent on a monthly basis in March and 2.6 per cent year-on-year.
"The next April CPI will also be uncomfortably strong. Pump prices have continued to rise this month and will deliver another boost to inflation," Mr Yaros said.
Friday's reading adds to further evidence that the Federal Reserve will maintain its wait-and-see posture as it assesses the Iran war's economic impact. A reading from the Fed's preferred inflation gauge released on Thursday showed consumer prices picked up in February even before the war began.
There are concerns that a prolonged conflict could weigh on the labour market if households and businesses pull back on spending because of higher energy costs. Israeli strikes on Lebanon are also threatening to break a two-week ceasefire announced by President Donald Trump earlier this week.
The US Vice President JD Vance is expected to lead a delegation to Pakistan this weekend for talks with Iran on a pathway to end the Iran war.
A survey released by the University of Michigan on Friday also showed consumer sentiment plunged this month because of the war's impact on petrol costs. The survey showed consumer sentiment sank roughly 11 per cent this month and is roughly 9 per cent lower than one year ago. Year-ahead inflation expectations also surged.
Survey comments "show that many consumers blame the Iran conflict for unfavourable changes to the economy", survey director Joanne Hsu said.
She also cautioned that the responses were completed before the temporary ceasefire agreement this week and that expectations will probably improve when consumers become confident that supply disruptions caused by the Iran war are easing.
