The largest monthly increase in gasoline prices in sixty years last month triggered a significant acceleration of inflation in the United States, 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 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 rose by 0.9% in March compared to February, representing the largest increase of its kind in over four years.
This is the first inflation measure to reflect the effects of the war in Iran. The surge in gasoline prices will strain the budgets of low- and middle-income households, making it harder to purchase other essential items, such as food and rent.
Excluding food and energy, whose prices are volatile, core prices rose by 2.6% in March compared to the previous year, up from 2.5% in February. Last month, core prices only increased by 0.2% compared to February, suggesting that the rise in gasoline prices has not yet impacted many other categories.
A major question at the moment is how long the shock of oil and gas prices 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’s invasion of Ukraine. Economists currently believe that it is unlikely for the United States to experience a generalized increase similar to that a few years ago when inflation exceeded 9%.
Nevertheless, the evolution of the war and its impact on inflation over the coming months remains highly uncertain. Despite a fragile ceasefire, little has changed in the Strait of Hormuz, a bottleneck through which millions of barrels of oil typically pass each day.
“It’s painful in the short term,” said Michael Pearce, chief U.S. economist at Oxford Economics. “It’s going to get even more painful in April,” when new gasoline price hikes will drive up inflation.
However, Mr. Pearce indicated that the impact could be shorter-lived than after the pandemic: “I think the situation looks more like 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 these higher costs on 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 raised shipping costs for businesses and households.
Food prices fell by 0.2% last month and only rose by 1.9% compared to the previous year, but economists expect them to increase in the coming months as diesel prices rise. 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 the production and delivery of food items also rise.”
