War in Iran is causing soaring inflation in the United States

The strongest monthly increase in gas prices in sixty years caused a significant acceleration of inflation in the United States last month, posing major challenges to Federal Reserve officials and exacerbating considerable political obstacles facing the White House.

Consumer prices rose by 3.3% in March compared to the previous year, the Labor Department announced on Friday, a sharp acceleration from the 2.4% level recorded in February and the largest annual increase since May 2024. On a monthly basis, prices increased by 0.9% in March compared to February, marking the strongest increase of this kind in over four years.

This is the first measure of inflation to reflect the effects of the war in Iran. The surge in gas prices will strain the budgets of low- and middle-income households, making it harder to afford other essential products such as food and rent.

Excluding volatile food and energy prices, core prices rose by 2.6% in March compared to the previous year, up from 2.5% in February. Last month, core prices only rose by 0.2% compared to February, suggesting that the increase in gas prices has not yet spilled over into many other categories.

One big question for now is how long the oil and gas price shock will last and whether it will lead to a broader and more sustained inflationary push, similar to what happened in the spring of 2022 after Russia invaded Ukraine. Economists currently believe that a generalized rise similar to that of a few years ago, when inflation exceeded 9%, is unlikely to happen in the United States.

The evolution of the war and its impact on inflation in the coming months remain highly uncertain. Despite a fragile ceasefire, little has changed in the Strait of Hormuz, a chokepoint through which millions of barrels of oil usually pass each day.

“It’s painful in the short term,” said Michael Pearce, chief US economist at Oxford Economics. “It will get even more painful in April,” when new gas price increases will drive up inflation.

However, Mr. Pearce indicated that the impact could be shorter-lived than after the pandemic: “I think the situation is more akin to a brief and violent shock than what we experienced in 2022.”

Industries dependent on oil and gas are facing higher costs, especially airlines, which have passed on these higher costs to travelers. Fares jumped by 2.7% just last month and are 14.9% higher than a year ago. Many delivery services, including UPS and FedEx, have already announced fuel surcharges that have increased shipping costs for businesses and households.

Food prices fell by 0.2% last month and only increased by 1.9% compared to the previous year, but economists believe they will rise in the coming months as diesel prices climb. Most food items are transported by truck.

The rise in fuel prices “contributes to the increase in production costs throughout the food supply chain and could put upward pressure on food prices in the future,” said Andy Harig, vice president of the professional group FMI-The Food Industry Association. “As energy prices rise, costs associated with producing and delivering food items also increase.”

Christopher Rugaber, The Associated Press