US inflation rose sharply in March, with the consumer price index (CPI) increasing 0.9% month-on-month and 3.3% year-on-year, according to data released on Friday. This marks the largest annual rise since summer 2024 and reflects the impact of the US-Israel conflict with Iran, which disrupted global oil supplies through the Strait of Hormuz.
Energy prices surged 10.9% in March, led by a 21.2% jump in gasoline prices, which accounted for nearly three-quarters of the monthly increase. Airfares rose 2.7% for the month and were 14.9% higher than a year earlier. Core inflation, excluding food and energy, rose 0.2% monthly and 2.6% annually.
The conflict has added to economic uncertainty already heightened by Donald Trump's tariffs. Consumer confidence fell sharply, with the University of Michigan survey dropping 10.7% to a record low. Survey director Joanne Hsu noted that many consumers blame the Iran conflict for unfavourable economic changes.
Despite rising prices, the labour market remained resilient, adding 178,000 jobs in March, with the unemployment rate falling to 4.3%. This puts the Federal Reserve in a difficult position as it considers interest rate adjustments. Minutes from the Fed's February meeting indicated concerns about prolonged inflation potentially necessitating rate increases.
Economists warn that the energy shock may persist. Bernard Yaros of Oxford Economics said the Fed will likely view the energy spike as temporary but cautioned that April's CPI could be further boosted by rising pump prices and statistical quirks from the government shutdown. Oil prices remain high despite a two-week ceasefire with Iran, with US crude still 10% above pre-conflict levels and nearly 30% higher since the start of the year.
