US inflation rises by 0.9% in March due to spike in oil prices
The Consumer Price Index in the United States increased by 0.9% in March, driven by the surge in oil prices. As GDP growth slows to 0.5%, the Federal Reserve finds itself caught between fighting high costs of living and supporting a sluggish economy.
The consequences of the Middle East conflict are starting to impact the American economy. March inflation numbers show a 3.3% rise over the year. The Consumer Price Index rose by 0.9% in a month, following a 0.3% increase in February. This marks the largest monthly increase since June 2022, directly linked to the spike in oil prices caused by the conflict.
However, Americans have been able to benefit from the situation by exporting more oil, especially in April. “This movement is directly linked to the disruption of flows in the Middle East, where the near closure of the Strait of Hormuz has forced Asian importers to turn massively to the United States,” noted John Plassard.
Despite the increase in oil exports, fuel prices in the US have surpassed $4 per gallon by the end of March. This nears historical peaks reached in 2022 after the start of the war in Ukraine.
Economic slowdown
Prior to the war, the American economy was showing signs of slowing down. The US GDP was revised down for the fourth quarter of 2025, with an annualized growth of only 0.5%, compared to initial estimates of 0.7% and 1.4%.
Other indicators of inflation released on Thursday show a 2.8% year-on-year rise in prices for February, based on the PCE index. This index is closely monitored by the Federal Reserve to guide its monetary policy, and currently, it is far from the institution’s target of 2%.
The Fed caught in a bind
The pressure is mounting on the Fed. The US central bank must adjust rates to control inflation (by raising them) and to stimulate economic activity in case of a slowdown (by lowering them). A combination of economic slowdown and higher inflation is never a good sign. While multiple rate cuts were previously considered, the consensus now anticipates a status quo for the remainder of the year at over 80% probability. The likelihood of a rate cut has fallen to 11%.
Furthermore, the ongoing conflict in the Middle East could continue to affect US inflation. Even though the US and Iran have agreed to a two-week truce, the future of the conflict depends on negotiations between the parties. “Even with a lasting agreement ending the war and full reopening of the Strait of Hormuz, it will take months for oil supply (…) and other raw materials to return to pre-war levels, and consequently, for prices to normalize,” noted economist Kathy Bostjancic.
As the midterm elections approach in November, Donald Trump faces high stakes. The former president was partly elected on promises to improve Americans’ purchasing power, a topic they are currently dissatisfied with. If the Fed cannot lower rates and inflation continues to rise, Republicans could lose their majority in Congress.
