Consumer prices climbed 3.3 percent in the 12 months through March, the Labor Department reported Friday, the biggest annual gain since May 2024 and a sharp acceleration from February's 2.4 percent reading. Gasoline, up 21.2 percent from February in the largest monthly jump since the government began tracking the figure in 1967, accounted for nearly three-quarters of the increase.
The print ends Wall Street's lingering hope for Federal Reserve rate cuts this year and hardens a feedback loop running from the Strait of Hormuz to American kitchen tables. Energy costs are bleeding into airfares, mortgage rates and home sales as consumer sentiment hits a record low.
At the pump
Average gasoline prices have risen more than a dollar a gallon since the United States and Israel launched their attack on Iran. California drivers paid $5.93 a gallon on Thursday, against a national average of $4.16, according to AAA. Fuel oil prices jumped more than 30 percent from February to March, the biggest move since February 2000.
Oil has retreated from its wartime highs but remains roughly 30 percent above pre-conflict levels. A tentative ceasefire has not pulled pump prices down, and analysts say energy supplies will take time to normalize even if shipping through the Strait of Hormuz resumes.
Core holds, barely
Stripping out food and energy, core inflation rose 2.6 percent from a year earlier, slightly below expectations. Prices for prescription drugs, used cars and trucks have fallen over the past year. Airline tickets and clothing rose in March, reflecting higher jet fuel and the residual pass-through of tariffs.
"Headline inflation is being driven higher by a temporary energy shock, but underneath the surface, core inflation continues to move in the right direction," said Adam Schickling, U.S. economist at Vanguard.
Housing freezes
The shock is already reshaping the rate-sensitive corners of the economy. Existing-home sales fell 3.6 percent in March to an annualized 3.98 million, the lowest since June, the National Association of Realtors said. The average 30-year fixed mortgage rate climbed to 6.37 percent last week from 5.98 percent before the strikes.
"Some buyers feel like they're frozen - they don't know how to make their decisions because events like the ones we're talking about spring up so rapidly and so out of our control," said Andrew Vallejo, a Redfin listing agent in Austin, Texas.
The caveat
The Fed has long tried to look through gasoline spikes, which bounce in both directions. New York Fed survey data this week showed consumers expect higher prices in the short run but still anticipate inflation easing over the long run. Berenberg economist Atakan Bakiskan said policymakers will be reluctant to repeat the language of the last cycle, when the central bank misread post-pandemic inflation as transitory.
Austan Goolsbee, president of the Chicago Fed, told the Detroit Economic Club this week that the longer inflation runs above the 2 percent target, the greater the risk it becomes entrenched. Employers added 178,000 jobs in March after cutting payrolls the prior month, a pace Goolsbee attributed to businesses waiting out the war before hiring or firing.
The next test is the April CPI report, which will show whether the energy shock is broadening into a second-round move through rents, services and wages — or fading with the barrel price.