U.S. March CPI rose 3.3% year over year to a two-year high; the Iran war is pushing up energy costs, but core inflation remains moderate

The U.S. Bureau of Labor Statistics (BLS) released data on Friday showing that, driven by higher energy costs from the Iran war, the March Consumer Price Index (CPI) year-over-year inflation rate surged to 3.3%, the highest level since April 2024, up sharply from 2.4% in February. However, excluding food and energy, core inflation was relatively moderate, indicating that underlying price pressures remain within manageable bounds.

Energy prices surged, driving the CPI spike

According to a report by CNBC, after seasonal adjustment, the March CPI rose 0.9% month-over-month, mainly driven by a 10.9% one-month jump in energy costs, including a 21.2% surge in gasoline prices, which accounted for nearly three-quarters of the overall increase in prices. The root cause of this energy-price surge traces back to the U.S.-Iran military conflict that broke out at the end of February.

However, excluding food and energy, core CPI rose only 0.2% month-over-month and 2.6% year-over-year, both falling short of the Dow Jones consensus expectations by 0.1 percentage point, suggesting that underlying inflation pressures have not spread along with energy prices. Prices even declined in categories such as health care, personal care, and used cars.

The Federal Reserve gets room to wait; the timing of a rate cut remains unclear

Alexandra Wilson-Elizondo, global head of multi-asset investing at Goldman Sachs Asset Management, said: “As long as these factors remain unchanged, we believe the Federal Reserve will overlook the noise driven by energy. The Federal Reserve has room to remain patient, and it has ample reason to do so.”

Because energy prices have already started to fall after a U.S.-Iran ceasefire agreement was reached in early April, Federal Reserve officials are expected to be able to “see through” the March inflation spike and focus on the trajectory of core inflation. However, core inflation has remained above the 2% target for five straight years. The market currently has almost no pricing for the possibility of rate cuts during the remainder of 2026, even though Federal Reserve officials hinted in the March meeting that they leaned toward cutting by a quarter point; the timing is highly uncertain.

Cooling persists in housing and services inflation; food prices are steady

As an indicator closely watched by the Federal Reserve, prices for services excluding energy rose 0.2% month-over-month and 3% year-over-year. Shelter costs increased 0.3% month-over-month and 3% year-over-year, matching the lowest level since August 2021, showing that services-sector inflation is steadily easing.

Overall, food prices were flat, with a 2.7% year-over-year increase. Among them, household food prices fell 0.2% month-over-month; meat prices dropped 0.6%; egg prices fell another 3.4%; and over the past year, they have cumulatively plunged 44.7%. New car prices rose only slightly, by 0.1%.

However, some categories still show the effects of tariffs and the war: airfare prices rose 2.7%, and clothing prices increased 1%. The CPI surge is also eroding workers’ real purchasing power. In March, real wages fell 0.6% month-over-month, average hourly earnings rose by only 0.2%, and real average hourly earnings rose by only 0.3% over 12 months.

This article, “U.S. March CPI rose 3.3%, a two-year high; the Iran war lifted energy costs, but core inflation remains moderate,” was first published on Chain News ABMedia.