U.S. inflation soared to its highest in nearly 2 years. This is the first assessment of the effect of the war

The Consumer Price Index (CPI), which measures changes in the cost of goods and services in the U.S., rose 0.9% in March from the previous month, according to data from the Bureau of Labor Statistics, the first full picture of how the surge in oil prices due to the war in the Middle East has affected consumer inflation, Barron's notes.

In annualized terms, CPI jumped 3.3% - while in February it was 2.4%, and the target level of the US Federal Reserve is 2%. Economists surveyed by FactSet expected inflation to rise 0.9% month-on-month and the annualized rate to 3.4%, Barron's reports.

The last time inflation was near the 3.3% level was in the spring of 2024. This is also the first time since September 2025 that the annual CPI rise has exceeded the 3% mark, Barron's notes. The monthly increase was the highest since June 2022, when inflation peaked amid Russia's war in Ukraine.

High prices, as expected, were mainly due to rising energy prices. Gasoline prices, for example, soared by 21.2% relative to the previous month, the largest jump over the entire period of observation since 1967. In February, gasoline prices remained virtually unchanged, while in January and December they were declining.

At the same time, analysts were surprised by a relatively moderate increase in core inflation, which does not take into account the most volatile categories - food and energy. The Fed is also focused on this indicator, as it considers it a more reliable indicator of stable price trends and future dynamics.

Core CPI rose 0.2% versus Wall Street's forecast of 0.3%, MarketWatch notes. The index has added 0.2% in three of the last four months, indicating elevated but generally controlled inflationary pressures prior to the conflict with Iran, the publication writes.

At the same time, persistently high oil prices could spread to other goods and services over time, amplifying core inflation as well.

On a year-over-year basis, Core CPI rose 2.6%. Economists surveyed by The Wall Street Journal had expected 2.7%.

The stock market reacted to the release with a short-term surge. By the opening, futures on S&P 500 added about 0.1%, futures on Nasdaq Composite - 0.2%. Exchange-traded contracts on Dow Jones remained virtually unchanged.

Americans are already feeling the effects of the U.S.-Iran war at gas stations. The average cost of a gallon of gasoline last week exceeded $4 for the first time since 2022, MarketWatch notes. This could be a blow to the U.S. economy: rising fuel costs reduce disposable income and limit consumption of other goods and services, the publication writes.

If oil prices remain well above pre-war levels, the Fed won't be able to ignore the general acceleration in inflation. In that case, the regulator will at least be extremely reluctant to cut interest rates - if not abandon easing altogether - until inflation starts to slow again, MarketWatch predicts.

"From the Fed's perspective, rising inflation risks support a wait-and-see approach to further interest rate cuts," Barron's quoted Edward Jones investment strategy analyst Brock Weimer as saying.

"Against the backdrop of strong labor market data and an expected acceleration in inflation in the coming months, we do not believe interest rates can sustainably decline," agrees Gregory Faranello, head of U.S. strategy at Amerivet Securities. His opinion is quoted by Bloomberg.

Inflation is likely to keep the regulator from moving to policy easing throughout the year, says Stephen Stanley, chief U.S. economist at Santander, MarketWatch reports. Moreover, he admits the Fed's next move is more likely to be a rate hike.

"Apart from gasoline, most index components have yet to reflect the impact of the war with Iran, so I expect core inflation to accelerate in the coming months," warned Omair Sharif, head of Inflation Insights.

This article was AI-translated and verified by a human editor