US inflation jumps to 3.3% in March, a two-year high, in first reading since Iran war began

US consumer prices jumped sharply in March, the Bureau of Labor Statistics reported on April 10, in the first inflation reading to capture the impact of the conflict with Iran that erupted at the end of February. The consumer price index rose 0.9% on the month, the largest monthly increase since June 2022, lifting the annual rate to 3.3% from 2.4% in February. It was the highest annual inflation reading since May 2024 and exceeded economists' expectations for a 0.8% monthly gain.

The surge was overwhelmingly an energy story. The energy index soared 10.9% in March, led by a 21.2% jump in gasoline prices that alone accounted for nearly three-quarters of the entire monthly increase in the all-items index. The national average price of gasoline climbed above $4 a gallon for the first time in more than three years, a direct consequence of the spike in crude oil after the war shut down much of the flow through the Strait of Hormuz. Brent had rocketed from around $71 a barrel in late February to roughly $95 within a week and to about $118 by mid-March, and because gasoline prices track crude almost in real time, the pass-through to the pump was swift.

Beneath the energy-driven headline, underlying inflation rose more modestly. Core CPI, which excludes food and energy, increased 0.3% on the month and 2.7% from a year earlier, its highest in five months but far below the headline rate. The contrast captured a key feature of the early phase of the shock: the war's impact had passed through fully to energy, where there is almost no supply-chain lag, but had not yet filtered into food, shelter and other goods, where contracts and pricing cycles cushion against immediate spot-price moves.

Economists cautioned that this was only the beginning. The institutional buffers that delayed the pass-through to non-energy categories meant that food, travel and shipping costs were expected to climb in the following months as higher diesel and transportation expenses worked their way through supply chains. Several forecasters warned that headline inflation would likely push above 4% by April, and that the ultimate scale of the increase would depend on how long the conflict continued to constrain energy exports.

Food prices were already up 2.7% over the year, with certain categories such as beef and coffee rising faster due to separate supply issues. Adding to the pressure, major carriers including UPS and FedEx had imposed higher fuel surcharges since the war began, and large e-commerce platforms were preparing to levy logistics surcharges, signaling that the energy shock would ripple well beyond the gas station.

The report complicated the outlook for the Federal Reserve, which had penciled in a rate cut for 2026 at its March meeting while holding its benchmark in a range of 3.5% to 3.75%. A renewed inflation spike, even one concentrated in energy, undercut the case for easing and set the stage for the contentious internal debate that would unfold at the central bank's late-April meeting. Economists also noted that a statistical quirk stemming from a lengthy government shutdown the prior autumn had been imparting a downward bias to inflation data, suggesting the underlying picture might be even firmer than the figures implied.

For markets, the March data marked the moment the war's inflationary footprint became unmistakable in official statistics. While analysts stressed that the situation differed from the 2022 episode, when inflation peaked above 9%, the report confirmed that the disinflation trend of the prior year had been thrown into reverse. With the conflict unresolved and energy prices volatile, the reading served as an early warning of the price pressures that would dominate the US economic landscape through the rest of 2026.