CPI Inflation Report: U.S. consumer prices rose the most in nearly four years in March, reportedly driven by higher oil prices linked to the conflict with Iran and the continued impact of tariffs, reducing the likelihood of interest rate cuts this year.
The Labor Department’s Bureau of Labor Statistics reported on Friday that the consumer price index (CPI) rose 0.9% last month, the biggest increase since June 2022, when prices rose in response to the Russia-Ukraine war. This followed a 0.3% rise in February. According to Reuters, consumer prices rose 3.3% year-on-year in March from 2.4% in the previous month.
The data was in line with economists’ expectations in a Reuters poll, which had expected 0.9% monthly growth and a 3.3% year-on-year gain. The rise in inflation followed a strong rebound in job growth, suggesting the labor market remains resilient.
A protracted conflict in the Middle East could weaken the labor market, especially if rising prices prompt households to cut back on spending, a concern. The US-Israel war with Iran has driven global oil prices up more than 30%, pushing the national average gasoline price above $4 a gallon for the first time in more than three years.
Read also | From India to the World: A Guide to Building Global Consumer Brands
Although President Donald Trump on Tuesday announced a two-week truce contingent on Iran reopening the Strait of Hormuz, the deal appeared uncertain. The rise in prices last month only reflected the immediate impact of the oil shock, which also raised diesel prices.
March’s sharp rise in prices highlighted growing pressures on consumer affordability. Trump clinched a decisive victory in the 2024 presidential election by promising to cut costs.
The Consumer Price Index (CPI) rose 0.2% in March, matching the increase seen in February, excluding the volatile food and energy categories. This led to a year-on-year rise in core CPI of 2.6%.
Read also | India’s consumer startup boom is hitting a wall
The relatively modest increase after February’s 2.5% year-on-year increase is unlikely to reassure Fed officials as inflation is expected to pick up in April with the broader impact of higher oil prices feeding through to the economy. The Fed uses the Personal Consumption Expenditures (PCE) price index as its benchmark for the 2% inflation target, and these measures also posted solid monthly gains in February.
Read also | RBI’s Sanjay Malhotra’s consumer moves: re-KYC, locker settlement, more
Both core CPI and PCE inflation were affected as companies passed on some of the cost of Trump’s sweeping tariffs to consumers, bucking the downward trend in rents.
A war in the Middle East to increase basic prices through expensive jet fuel?
Economists expect the ongoing war in the Middle East to push core inflation higher in the coming months, driven by rising jet fuel prices, which could raise airfares, as well as higher diesel prices, which would increase the cost of transporting goods by road. Prices of items such as fertilizers and plastics are also likely to rise, the report said.
With inflation showing signs of strengthening, some economists now believe that the Federal Reserve may hold off on cutting interest rates this year. This view was reinforced by the minutes of the Fed’s 17-18 policy meeting. of March released on Wednesday, which indicated that a growing number of policymakers last month were considering the possibility that further rate hikes might be necessary.
The Federal Reserve left its key overnight interest rate unchanged in the 3.50-3.75% range. Some economists still believe a rate cut is possible if labor market conditions weaken. Others argue that if higher gasoline prices reduce consumers’ purchasing power and lead them to cut back on spending, businesses may struggle to pass on the rising costs of higher oil prices.
(With agency input)
