Iran war sends US inflation soaring
WASHINGTON—The largest monthly jump in gas prices in six decades caused a sharp spike in inflation in March, creating major challenges at the Federal Reserve and heightening already substantial political hurdles for the White House.
Consumer prices rose 3.3 percent in March from a year earlier, the Labor Department said Friday, up sharply from just 2.4 percent in February and the biggest yearly increase since May 2024. On a monthly basis, prices rose 0.9 percent in March from February, the largest such increase in nearly four years.
It’s the first read on inflation to capture the effects of the Iran war. The surge in gas prices will stretch the budgets of lower- and middle-income households as it erodes their incomes, making it harder to afford other necessities, such as food and rent.
Excluding volatile food and energy, core prices rose 2.6 percent in March from a year earlier, up from 2.5 percent in February.
Core prices last month rose a modest 0.2 percent, suggesting that rising gas prices haven’t yet spread to many other categories.
Air fares, grocery
For now, economists say it is unlikely the US will see a widespread increase similar to the pandemic era, when inflation topped 9 percent in 2022.
Fares jumped 2.7 percent just last month and are 14.9 perceny higher than a year ago.
Many delivery services, including UPS and FedEx, have already announced fuel surcharges that have raised shipping costs for businesses and households.
Grocery prices slipped 0.2 percent last month and are up just 1.9 percent from a year earlier. Yet economists believe they will move higher in the coming months as diesel fuel prices surge. Most food is shipped by truck.
More expensive fuel is “contributing to rising production costs across the food supply chain and could put upward pressure on grocery prices going forward,” said Andy Harig, a vice president at grocery trade group FMI-The Food Industry Association. “As energy prices increase, the costs associated with producing and delivering food also rise.”
The gas price shock stemming from the Iran war has shifted inflation’s trajectory, from a slow, gradual decline to a sharp increase further away from the Fed’s 2-percent target.
As a result, the central bank will almost certainly postpone any cut in interest rates for months. Many Fed officials will look past the increase in headline inflation, however, and focus on core prices, which are likely to rise more slowly.
Impact of tariffs
Consumer sentiment plunged to a record low in April, according to a survey released Friday by the University of Michigan, largely because of the Iran war and concerns over higher gas prices. Their Index of Consumer Sentiment fell to 47.6, from 53.3 in March.
The increase in costs follows tariffs that were also a significant expense.
Kyle LaFond, founder of American Provenance, a small manufacturer of personal care products near Madison, Wisconsin, said the company imports coconut oil, shea butter, cocoa butter, and other ingredients.
LaFond said he absorbed tariff costs for months, but finally threw in the towel last September and raised prices by 20 percent to 30 percent across the board, the first price hike by the company since 2021.
Meanwhile, gas prices averaged $4.15 a gallon nationwide Friday, up from $2.98 on the day before the war began and a hike of nearly 40 percent, according to motor club AAA.
Economists say that alongside the weaker job market and consumer spending, there are no large government stimulus checks being issued to spur demand.
