WASHINGTON, April 10 - U.S. consumer prices likely climbed sharply in March, marking the biggest monthly increase in nearly four years, as the conflict with Iran sent crude oil prices sharply higher and the impact of tariffs on consumer goods continued to show through, according to a Reuters survey of economists.
The expected monthly surge in the Consumer Price Index comes on the heels of a strong rebound in job growth the previous month, suggesting the labor market has so far remained resilient. Economists cautioned, however, that a durable confrontation in the Middle East could eventually weigh on employment if sustained price increases prompt households to rein in spending.
Global crude prices have jumped by more than 30% amid the U.S.-Israeli war with Iran, with the national average retail price for gasoline climbing above $4 a gallon for the first time in more than three years. While President Donald Trump announced a conditional, two-week ceasefire that requires Tehran to reopen the Strait of Hormuz, the pause has been described as fragile.
The Labor Department’s CPI report, due for release on Friday, is expected to reflect mainly the immediate impact of the oil shock, which has also pushed up diesel costs. A stripped-down measure of inflation that omits volatile food and energy components is forecast by economists to have grown at a more moderate pace.
"The top level CPI is going to look pretty ugly," said Brian Bethune, an economics professor at Boston College. "There is a second wave coming, which will be the fuel surcharges that will start to show up and cross to the other commodities, food in particular will be hit."
In the Reuters economist survey, the CPI was likely to have increased 0.9% in March. If realized, that would be the largest monthly rise since June 2022, when prices surged following the Russia-Ukraine war. Individual estimates in the survey ranged from a 0.4% increase to a 1.7% jump. Consumer prices had risen 0.3% in February.
On an annual basis through March, the CPI was estimated to have advanced 3.3%, the biggest 12-month increase since May 2024 and a step up from February’s 2.4% gain. Although these figures remain far below the 9.1% peak reached in June 2022, the expected March spike underscores renewed affordability pressures for households.
Political reaction in Washington has been sharp. "Trump has betrayed working families," said Alex Jacquez, chief of policy and advocacy at Groundwork Collaborative, a progressive think tank. "The president’s illegal war in Iran is just the latest in his misguided economic agenda that continues to pummel American families, small businesses and communities."
Excluding food and energy, the CPI was forecast to have risen 0.3% in March after a 0.2% gain in February, translating into a year-on-year gain of 2.7% for the so-called core CPI. Economists said that while the monthly rise appears moderate, secondary effects from soaring oil prices are expected to push core inflation higher in coming months as fuel-driven costs ripple through the economy.
Policymakers at the Federal Reserve focus on the Personal Consumption Expenditures price indexes when assessing progress toward their 2% inflation goal. Those PCE measures posted strong monthly increases in February. Both core CPI and core PCE inflation have been influenced by businesses passing through portions of the broad tariffs introduced under President Trump, tempering some of the disinflationary trends coming from rents.
Tariffs have contributed to price increases across a variety of goods, including apparel, household furnishings, communications equipment, personal grooming products, and recreational goods and vehicles. Economists expect the Middle East conflict to lift core prices further via higher jet fuel costs, which would raise airline fares, and diesel, which would increase trucking and goods transportation expenses. Prices for fertilizer and plastics, among other inputs, are also likely to climb.
"Even though we have had a pretty sharp drawdown in prices in the last couple of days, that increase we saw is in the pipeline, and we are going to continue to see increases in inflation," said Dan North, senior economist at Allianz Trade Americas. North emphasized that the length of the conflict will determine how persistent the inflationary fallout will be.
The rise in inflation has led some economists to conclude that the Fed may not cut interest rates this year. Minutes released on Wednesday from the Fed’s March 17-18 policy meeting showed a growing faction of policymakers last month felt further rate hikes might be necessary. The central bank is currently maintaining its benchmark overnight interest rate in a target range of 3.50% to 3.75%.
Still, a few economists left open the possibility of a rate reduction if labor market conditions begin to weaken. Others noted a more nuanced risk: that consumers scaling back spending because higher gasoline prices reduce their purchasing power could make it harder for firms to continue passing through elevated oil-related costs to final prices.
"When we look out, let’s say towards the final quarter of 2026 and the end of the year, there may be some element that pushes the Fed to ease monetary policy, but that would be for bad reasons," said Gregory Daco, chief economist at EY Parthenon. "But we have to contend with this very real possibility that the next Fed move is a rate hike."
Summary
- Monthly U.S. CPI is projected to have risen 0.9% in March, the largest monthly increase since June 2022, with year-on-year CPI estimated at 3.3%.
- Higher crude prices tied to the U.S.-Israeli war with Iran and lasting tariff pass-throughs are the main drivers of the anticipated increase.
- Core inflation (excluding food and energy) likely rose 0.3% in March, equating to a 2.7% annual rate, while secondary effects from fuel could push core prices higher in the months ahead.
Key points
- Energy markets: A more than 30% jump in global crude prices and gasoline above $4 a gallon are central to the expected CPI surge, affecting consumer affordability and transportation costs.
- Monetary policy: Rising inflation increases the likelihood that the Federal Reserve will delay or forgo rate cuts this year and raises the prospect of further tightening.
- Goods prices: Broad tariffs have contributed to higher prices across a range of consumer goods, bolstering core inflation measures despite decelerating rents.
Risks and uncertainties
- Duration of the Middle East conflict - The longer the confrontation lasts, the greater the chance of sustained oil-price-driven inflation, with spillovers to airfares, diesel-related logistics, and input prices such as fertilizer and plastics.
- Household spending responses - If consumers cut back due to higher gasoline and living costs, demand could weaken, affecting businesses’ ability to pass on higher input costs and potentially soften labor market conditions.
- Monetary policy direction - Fed policymakers signaled openness to further rate increases; the trajectory of inflation and employment will determine whether the next move is a hike or, under deteriorating conditions, an eventual cut.