A man buys butter at a supermarket in Houston, Texas, on March 17, 2026.
Ronaldo Shemit | AFP | Getty Images
Consumer prices soared in March as the Iran war drove up energy costs and pushed the Federal Reserve further from its inflation target, according to a report from the Bureau of Labor Statistics on Friday. However, underlying inflation was relatively benign.
The consumer price index rose a seasonally adjusted 0.9% in the month, bringing annual inflation to 3.3%, driven by a 10.9% rise in energy costs. Both numbers were in line with the Dow Jones consensus. This is the highest annual rate since April 2024 and increased from 2.4% in February.
However, core prices excluding food and energy rose much smaller, at just 0.2% month-on-month and 2.6% year-on-year, both 0.1 percentage points lower than expected, indicating that underlying inflation is more subdued. Medical, personal care, and used cars and trucks all recorded monthly declines, and there were even signs of deflation.
The Iran conflict dominated monthly inflation statistics, with gasoline soaring 21.2%, accounting for nearly three-quarters of the headline price increase, according to the BLS.
Energy prices fell in April after a ceasefire between the United States and Iran that began at the end of February established a tenuous peace in the fighting. That would allow Fed officials to scrutinize March’s spike and focus more on the underlying trajectory of inflation, which has been above target for five years.
Markets were already pricing in little chance of a rate cut before the end of 2026, but Fed officials signaled at their March meeting that they were leaning toward a 0.5 percentage point cut, and the timing is highly uncertain.
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