What we're covering here
• The war with Iran drove up monthly US inflation threefold in March, according to the latest Consumer Price Index report, released Friday morning.
• The annual rate of inflation reached 3.3% in March, up from 2.4% in February. The monthly rate measured 0.9%, according to the Bureau of Labor Statistics.
• The price spike was overwhelmingly driven by spiraling energy costs from the chokehold that Iran has on global oil supply. Gasoline rose by a record 21.2% last month.
• Frustration with higher prices pushed consumer sentiment to a historic low, below anything recorded during the Great Recession or the Covid pandemic.
How companies are passing on higher oil prices to consumers
After weeks of war-driven pressure on fuel prices and supply chains, some businesses are starting to pass those higher costs along to consumers via new fees — or through other, less obvious changes.
American Airlines, Delta Air Lines, JetBlue, Southwest and United Airlines have all raised checked baggage prices as a way of offsetting higher energy costs, and more airlines are likely to follow their lead.
United CEO Scott Kirby also warned recently that certain routes will be eliminated over the next two quarters as a form of cost cutting.
The cost of shipping goods by rail, air, road and sea has also increased since the war with Iran broke out, with shipper directly passing on higher fuel prices to customers.
Read more here.
Concerns about stagflation are growing. Here's what that means
Concerns have been mounting that the US economy could soon experience an ugly economic phenomenon: stagflation; aka, when economic growth significantly slows and inflation accelerates.
Those concerns have been front and center since the war with Iran broke out, pushing energy prices higher while cracks in the labor market are widening. Additionally, the abrupt Arab oil embargo in the 1970s is precisely what ushered in stagflation.
But Federal Reserve Chair Jerome Powell said at last month’s monetary policy meeting he isn’t worried.
“I would reserve the term stagflation for a much more serious set of circumstances. That is not the situation we’re in,” Powell told reporters.
What about tariffs?
“We almost forget the tariffs, because we’re all paying attention to the gas,” Heather Long, chief economist at Navy Federal Credit Union, told CNN. “But it’s a good reminder that part of the issue here is we’re piling on top of what was already rising.”
Here’s where tariff-related inflation is still showing up in consumer pricing:
- Toys, a category heavily reliant upon imports, increased 2.3% in March. That’s the largest monthly gain in nearly five years.
- Tools and hardware went up 1.4%, the largest increase since October 2022.
- The cost to service vehicles was up 1.4%, the largest since September 2022.
Consumer sentiment plummets to record low
Americans are souring on the economy as the US-Israeli war with Iran pushes up inflation, prompting consumer sentiment to plummet to its lowest level on records going back to 1952.
The University of Michigan’s latest consumer survey released Friday showed that sentiment declined 11% early this month to a reading of 47.6, lower than anything seen in the post World War II era, including during the Great Recession, the pandemic downturn and the historic inflation surge afterward.
“Open-ended comments show that many consumers blame the Iran conflict for unfavorable changes to the economy,” Joanne Hsu, the survey’s director, said in a release.
“Demographic groups across age, income, and political party all posted setbacks in sentiment, as did every component of the index, reflecting the widespread nature of this month’s fall,” she added.
Read more here.
White House touts egg prices
The Trump administration has acknowledged that rising oil and gas prices because of the war with Iran would send inflation higher. But it has repeatedly said a weakened Iran will be worth the cost.
On Friday, the White House opted for a different message: Other prices are falling.
“Although gas and energy prices are seeing volatility, prices of eggs, beef, prescription drugs, dairy, and other household essentials are falling or remain stable thanks to President Trump’s policies,” said White House spokesperson Kush Desai in a post on X.
Desai is right: Egg prices have fallen 44.7% over the past year as the industry recovered from the avian flu epidemic that had sent prices of a dozen eggs into the double digits. Meat edged 0.6% lower last month but prices remain high – and have risen 6.8% over the past year.
Overall, grocery prices fell 0.2% last month but remain 1.9% higher over the course of the year.
Desai also noted that US oil production remains robust and tax cuts will help pad consumers’ bank accounts.
“As the Administration ensures the free flow of energy through the Strait of Hormuz, the American economy remains on a solid trajectory thanks to the Administration’s robust supply-side agenda of tax cuts, deregulation, and energy abundance.”
But the average increased tax refund is $351 this year, compared to last year. The annual increase in gas prices will cost households $190 a month in added costs, according to Andy Lipow, president of Lipow Oil Associates.
Affordability is now further out of reach than before the war
The cost of living remains Issue No. 1 for US voters in poll after poll. Today’s inflation report shows that America’s affordability problem is getting worse because of the war.
Inflation has been a persistent thorn in the economy’s side since the post-pandemic economic boom, Ukraine-Russia war and snarled supply chain sent prices rocketing higher starting in 2021. Price increases have cooled off dramatically in the past few years, but inflation still hasn’t returned to pre-pandemic levels.
Americans haven’t yet adjusted to higher prices. And now, inflation is surging again.
So it’s alarming to see a sharp increase like this in the first four weeks of the war. What we’ve seen in the March report is really just the first-order effects of an inflation rebound that could last for months.
Eventually, higher energy costs will bleed through into all kinds of other things that feed into this inflation number: food, airfares and all the other items that are made with crude and crude byproducts. Everything that’s made with plastic, everything that is delivered on a truck… it’s a lot of stuff.
It could be months before the full effect of this is felt. And energy prices are stubborn: They rise faster than they fall.
Wall Street shrugs off latest inflation report
US stocks opened little changed Friday morning after data showed inflation surged in March but was in line with forecasts.
The Dow fell 41 points, or 0.1%. The S&P 500 rose 0.26% and the tech-heavy Nasdaq gained 0.5%.
The S&P 500 is up for the eighth day in a row as a relief rally has taken place on Wall Street. Developments in the Middle East and the state of the US-Iran ceasefire are in focus.
While the Iran war and oil shock have sent energy prices soaring, a measure of inflation excluding food and energy prices rose 0.2% month over month in March.
Investors have been adjusting their expectations for inflation because of the spike in oil prices, so the report was expected to be hot. Treasury yields ticked higher.
“When paired with the February PCE data we received yesterday, the message is clear: inflation remains sticky,” Bret Kenwell, US investment analyst at eToro, said in a note.
Traders are fixated on whether the fragile ceasefire can hold and if oil tankers will be able to transit the crucial Strait of Hormuz.
This is just the start of an inflation rebound — even if the ceasefire holds
The trouble with economic data is that it is backward looking. Today’s inflation report is actually March’s inflation report.
But we can learn from our past experience with oil shocks to figure out what comes next. It’s not pretty.
Even in the most optimistic of scenarios, where the ceasefire agreement between the United States and Iran holds and the Strait of Hormuz reopens, consumer prices will remain high and inflation will almost certainly continue to gain for months.
That’s because oil shocks have both an immediate and a delayed effect on overall prices: Gas prices shoot higher right away, but other prices rise later as higher energy prices work their way through the economy.
For example, grocery prices fell in March, even as the cost of diesel surged. Eventually, higher diesel prices will send food prices higher, because shipping companies will charge supermarkets more to deliver groceries. Food prices typically take three to six months after the initial shock to gain.
Other items also act with a lag.
And gas prices also will remain high for quite some time, even if crude prices have peaked and start to fall in the coming days – a big if, because traffic through the strait has remained at a crawl. Gas stations act slowly to lower prices, because it takes time for lower-priced crude to get refined, warehoused and shipped to stations. Station owners make thin profits, and they resist lowering prices.
What the latest inflation data means for the Fed and interest rates
The US-Israeli war with Iran jacked up inflation in March, but Federal Reserve officials still want to see the situation play out for a little bit first, according to their latest speeches. Many also believe the price shock may be temporary.
That means interest rates are expected to remain unchanged over the next two meetings, slated for later this month and June, Wall Street’s expectations show.
After that, however, it is possible the Fed could hike rates, especially if inflation pressures spread beyond energy and push up so-called core inflation. Several officials even wanted to note the possibility of a rate hike in their policy statement from March, according to minutes from that meeting released earlier this week.
However, Fed Chair Jerome Powell said earlier this month that “the tendency is to look through any kind of a supply shock.” He added that the Fed’s reaction function is largely centered on Americans’ expectations for inflation in the next five to 10 years, which haven’t surged.
Follow inflation's recent trajectory
Ripple effects from the Iran war, which began in late February, set back progress on inflation in March. However, underlying inflation, which excludes energy prices, held steady.
War raises prices more quickly than tariffs
Businesses for the past year have been bearing the brunt of higher tariffs by absorbing the majority of the cost without raising prices significantly. But that means they have even less wiggle room to assume higher transportation costs.
That means consumers are poised to see prices rise a lot more quickly than they have from tariffs, especially because energy is one of the biggest expenses for businesses.
Gasoline rose by a record 21.2%
Sharply rising gas and energy prices were the biggest contributor to March’s jump in inflation.
Gasoline prices, which rose a record 21.2% during the month, accounted for nearly three-quarters of the overall monthly increase.
“There’s been bigger energy price shocks in total, but they’ve rippled through over several months,” Samuel Tombs, chief US economist at Pantheon Macroeconomics, told CNN ahead of the report. “This just came through in one month.”
“The energy price shock will take many months to play out to other parts of the economy,” Tombs said. “Goods prices won’t change immediately, but after three to six months, you tend to see energy price changes filter through to consumers.”
This post has been updated with new numbers from the CPI data release.
Iran war oil shock pushes US inflation to highest level in almost two years
A war-driven jump in gas prices helped push US inflation to 3.3% in March, marking the fastest annual pace in nearly two years, new Bureau of Labor Statistics data showed Friday.
On a monthly basis, prices rose 0.9%, triple the 0.3% pace seen in February, when inflation was 2.4%, the latest Consumer Price Index data showed.
Economists had expected prices to jump 0.9% from the month before and for the annual rate to climb to 3.4%, according to FactSet.
Ripple effects from the Iran war, which began in late February, have swiftly set back progress on inflation while amplifying longstanding affordability concerns.
Stock futures are mixed ahead of inflation data
US stock futures were little changed Friday morning as traders await Consumer Price Index data for March, set to be released at 8:30 a.m. ET.
Dow futures were flat. S&P 500 futures rose 0.1%, and Nasdaq 100 futures gained 0.2%.
Wall Street has staged a rebound this month after stocks tumbled in March. The S&P 500 has gained seven days in a row and is down just 0.8% since the war with Iran began.
A drop in oil prices earlier this week and hope for de-escalation are helping fuel the rally. Brent crude traded at $96 per barrel Friday morning, down 12% this week but well above its pre-war level.
The spike in energy prices caused by the effective closure of the Strait of Hormuz and conflict in the Middle East have stoked concerns about inflation. Traders have dialed back expectations for Federal Reserve rate cuts this year in response.
Treasury yields were also little changed ahead of the data release. Yields have moved higher due to inflation concerns since the war with Iran began, raising the cost of a mortgage.
What to expect from CPI today
If the latest consumer price data matches expectations, inflation could be back at a level not seen in nearly two years.
Headline inflation is expected to rise to 3.4%, according to FactSet, with a monthly increase of 0.9%, up from a 0.3% increase in February. Core inflation, which strips out more volatile categories like energy, is projected to show an increase of 2.7%, up from 2.5% in February. Monthly core could rise to 0.3%, a slight acceleration from the 0.2% increase in February.
Sharply rising gas and energy prices are expected to be the biggest contributor to March’s expected jump in inflation. Other oil-related price hikes, such as airfares, could show up immediately.
Even before the war, inflation was running higher than normal due to tariff-related price hikes on goods as well as still-strong consumer demand.
Inflation could soon outpace wage growth
For the past 34 months, the average wage has been growing faster than prices.
But the Consumer Price Index for March is expected to show inflation reached its highest level in almost two years, due to the Middle East war’s energy shock.
That could almost wipe out Americans’ pay gains.
Last month, average hourly wage growth slowed to 3.5%, Bureau of Labor Statistics data showed. Headline inflation is expected to reach 3.4% in March.
“We’ll definitely see elevated prices eating away at people’s paychecks,” Elise Gould, a senior economist at the Economic Policy Institute, told CNN.
