Consumer prices rose 3.3% in March from a year earlier, the Labor Department said Friday, up sharply from just 2.4% in February and the biggest yearly increase since May 2024. On a monthly basis, prices rose 0.9% 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.
Excluding the volatile food and energy categories, core prices rose 2.6% in March from a year earlier, up from 2.5% in February. But last month core prices rose a modest 0.2%, suggesting that rising gas prices haven't yet spread to many other categories.
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% target. As a result, the central bank will almost certainly postpone any cut in interest rates for months and many Fed officials have said a rate hike may be needed if inflation doesn't cool. Gas prices are also a highly visible cost that has outsize impacts on consumer confidence and political sentiment.
Higher gas prices sap consumers' ability to spend on other goods and services and as a result could also slow economic growth. At least in the short run, many Americans can only make limited changes to their daily driving habits, which are largely determined by where they live, shop, and work. As a result, most people will pay higher prices for gas, and potentially cut back elsewhere.
Gas prices averaged $4.15 a gallon nationwide Friday, up from $2.98 on the day before the war began, according to motor club AAA.
