Iran war oil shock pushes US inflation to 3.3%. It’s expected to get worse

By Alicia Wallace, CNN

(CNN) — A war-driven jump in gas prices helped push US inflation to 3.3% in March, marking the fastest annual pace in nearly two years, new Bureau of Labor Statistics data showed Friday.

On a monthly basis, prices rose 0.9%, triple the 0.3% pace seen in February, when inflation was 2.4%, the latest Consumer Price Index data showed.

Gasoline prices, which rose a record 21.2% during the month, accounted for nearly three-quarters of the overall monthly increase.

Economists had expected prices to jump 0.9% from the month before and for the annual rate to climb to 3.4%, according to FactSet.

Ripple effects from the Iran war, which began in late February, have swiftly set back progress on inflation while amplifying longstanding affordability concerns.

Americans’ wage gains, which had been outpacing inflation by roughly one percentage point for nearly three years, quickly were eaten away in March. When adjusted for inflation, average hourly earnings grew at an annual rate of 0.3% March, down from 1.3% in February.

“It’s going to get a lot worse before there’s any relief,” Heather Long, chief economist at Navy Federal Credit Union, said in an interview with CNN. “Even if the war on Iran ends in two weeks, and there’s magically an agreement, inflation will continue to rise for months to come.”

A slow boil of price increases

Ahead of the report, economists had expected that price hikes could show up in categories like airline fares, transportation costs and even groceries. Those respective gains were more muted than expected, and overall grocery prices fell 0.2% in March.

Excluding gas and food, categories that tend to be volatile, core CPI rose 0.2% in March, matching the pace from the month prior. On an annual basis, that closely watched index of underlying inflation rose 2.6% from 2.5% in February.

“We haven’t seen it come through with food yet, in airfares – those are clearly going to go higher – and in transit costs,” Long added. “It’s just a matter of time.”

The ceasefire reached earlier this week stemmed some fears that the conflict could drastically deepen or even come to a resolution sooner than later. However, uncertainty continues to linger, as do the potential inflationary effects.

Inflation is expected to accelerate in the coming months as the war’s aftershocks ripple beyond gas prices and permeate through a host of commonly purchased goods as well as some services.

Even before the war, inflation was running higher than normal, kept elevated by tariff-related price hikes on goods as well as still-strong consumer demand, to a lesser extent, on services.

“There are fast-moving and slow-moving effects of an oil price shock, and some of those effects … aren’t there yet,” Tyler Schipper, associate professor of economics and data analytics at the University of St. Thomas in St. Paul, Minnesota, told CNN.

“The good news is that with a shock like this, there’s no reason to suspect that this reignites a surge in inflation,” he added. “The bad news is that consumers should still expect there to be cost increases in other categories.”

And that tariff-related inflation is still there. The oil price shock has just been layered atop it.

“We almost forget the tariffs, because we’re all paying attention to the gas, but it’s a good reminder that part of the issue here is we’re piling on top of what was already rising,” said Long, the Navy Federal Credit Union economist.

The price of toys, a category heavily reliant upon imports, increased 2.3% in March, the largest monthly gain in nearly five years; tools and hardware were up 1.4%, the largest increase since October 2022; and the cost to service vehicles was up 1.4%, the largest since September 2022.

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