In March, US consumer prices rose at their biggest pace in nearly four years as the war with Iran pushed up oil prices and the impact of tariffs continued, further reducing the chances of an interest rate cut this year, Reuters reported.
The consumer price index (CPI) rose 0.9 percent on a monthly basis, the Bureau of Labor Statistics at the Labor Department said – the largest increase since June 2022. In February, the growth was 0.3 percent, BTA recalls.
On an annual basis, inflation reached 3.3 percent in March, compared to 2.4 percent a month earlier, in line with the expectations of economists surveyed by Reuters.
The price increase is reported against the backdrop of a strong labor market, after employment recorded a sharp recovery in the previous month – a signal that the economy remains resilient for now.
However, concerns are growing that the prolonged conflict in the Middle East could weaken consumption if households begin to limit their spending under the pressure of higher prices.
The war between the United States and Israel with Iran led to a sharp increase in the price of crude oil – by more than 30 percent, with the average retail price of gasoline in the country exceeding $4 per gallon for the first time in more than three years.
Although President Donald Trump announced a temporary two-week truce, the outlook remains uncertain, especially given the strategic importance of the Strait of Hormuz for global energy supplies.
The jump in inflation in March mainly reflected the first-hand effect of higher energy prices, including gasoline and diesel, underscoring the growing pressure on household purchasing power.
Secondary inflationary effects expected
Excluding food and energy, the so-called core CPI rose 0.2 percent on a monthly basis and 2.6 percent on an annualized basis – a moderate acceleration from February.
However, economists warn that core inflation is likely to accelerate in the coming months as the second-round effects of higher oil prices begin to spread to a wider range of goods and services.
Higher jet fuel costs are expected to push up airfares, while higher diesel prices will make road transport and, consequently, the delivery of goods more expensive. Further pressure is also expected on fertilizers, plastics and other production inputs.
At the same time, companies are already passing on some of the costs of the tariffs introduced by the Trump administration to end consumers, which is contributing to persistent inflationary pressures.
The Federal Reserve Board remains under pressure
The increasing inflation is leading more and more economists to believe that the Federal Reserve Board (FRB) may refrain from lowering interest rates this year. The minutes of the central bank's meeting in March show that some bankers are even considering the possibility of another increase.
Currently, the base interest rate remains in the range of 3.50 percent - 3.75 percent.
Some analysts still allow for the possibility of a rate cut if the labor market begins to deteriorate. Others warn that if high fuel prices curb consumption, businesses may struggle to pass on higher costs to customers.
In this context, the development of the Middle East conflict will remain a key factor not only for inflation but also for overall US economic policy in the coming months.