WASHINGTON – March consumer prices are projected to have climbed at their fastest pace in nearly four years as the ongoing conflict with Iran drove oil costs higher and tariff impacts continued to affect the economy, potentially eliminating prospects for Federal Reserve rate reductions in 2025.
The expected monthly Consumer Price Index jump would come alongside strong employment growth recorded last month, indicating the job market remains resilient. However, analysts worry that extended Middle Eastern hostilities could weaken employment if consumers reduce spending in response to elevated prices.
The conflict between the U.S.-Israel alliance and Iran has pushed global oil costs up over 30%, causing average gas prices nationwide to exceed $4 per gallon for the first time in more than three years. While President Donald Trump announced a two-week ceasefire Tuesday contingent on Tehran reopening the Strait of Hormuz, the agreement appears unstable.
Friday’s Labor Department inflation report will likely capture only the immediate impact of the oil price spike, which has also increased diesel costs. Core inflation measures excluding volatile food and energy sectors probably rose moderately, according to economic forecasts.
“The top level CPI is going to look pretty ugly,” said Brian Bethune, an economics professor at Boston College. “There is a second wave coming, which will be the fuel surcharges that will start to show up and cross to the other commodities, food in particular will be hit.”
Economists surveyed by Reuters predict the CPI climbed 0.9% last month, marking the steepest monthly increase since June 2022 when prices spiked during the Russia-Ukraine conflict. Projections range from 0.4% to 1.7% growth. February’s consumer prices increased 0.3%.
Year-over-year through March, the CPI is estimated to have grown 3.3%, representing the largest annual gain since May 2024 and up from February’s 2.4% increase. While significantly below the 9.1% peak reached in June 2022, March’s anticipated jump would highlight ongoing affordability struggles for consumers.
Trump secured the 2024 presidential election with promises to reduce costs for Americans.
“Trump has betrayed working families,” said Alex Jacquez, chief of policy and advocacy at Groundwork Collaborative, a think tank and progressive advocacy group. “The president’s illegal war in Iran is just the latest in his misguided economic agenda that continues to pummel American families, small businesses and communities.”
Excluding food and energy, the CPI is projected to have increased 0.3% last month following February’s 0.2% gain. This would result in a 2.7% annual increase in core CPI. The moderate rise after February’s 2.5% advance will likely provide little reassurance to Federal Reserve officials, who anticipate acceleration in April as secondary oil price effects emerge.
The Fed monitors Personal Consumption Expenditures price indexes for its 2% inflation target. These measures showed significant monthly increases in February. Both core CPI and PCE inflation have been influenced by businesses transferring portions of Trump’s widespread tariffs to consumers, counteracting declining rent trends.
Tariffs have elevated costs across various sectors, including clothing, home furnishings, communications, personal care items, recreational products, and vehicles.
Looking ahead, economists anticipate the Middle Eastern conflict will push core prices higher through expensive jet fuel raising airline tickets and diesel increasing transportation costs for goods. Fertilizer and plastic prices are also expected to climb.
“Even though we have had a pretty sharp drawdown in prices in the last couple of days, that increase we saw is in the pipeline, and we are going to continue to see increases in inflation,” said Dan North, senior economist at Allianz Trade Americas. North noted that the conflict’s duration will determine how long inflation effects persist.
Rising inflation has convinced some economists the Fed will not lower interest rates this year, a view strengthened by Wednesday’s release of minutes from the central bank’s March 17-18 policy meeting, which revealed growing numbers of policymakers considering potential rate increases. The Fed maintained its benchmark overnight rate in the 3.50%-3.75% range.
Some economists still anticipate possible rate cuts if employment conditions worsen. Others suggest that consumers reducing spending as gas prices erode purchasing power could prevent businesses from passing along higher oil-related costs.
“When we look out, let’s say towards the final quarter of 2026 and the end of the year, there may be some element that pushes the Fed to ease monetary policy, but that would be for bad reasons,” said Gregory Daco, chief economist at EY Parthenon. “But we have to contend with this very real possibility that the next Fed move is a rate hike.”
