US inflation soared in March, driven by Iran war energy shocks

New government data released Friday shows that the effects of the war in Iran are rippling across the U.S. economy.

The nation’s inflation rate rose 3.3% in March from a year earlier and 0.9% from the previous month, the Labor Department said Friday. The increase, the biggest jump since June 2022, was largely driven by energy shocks.

Excluding food and energy, which can swing sharply from month to month, prices rose 2.6% in a year and 0.2% from February, according to the monthly U.S. Consumer Price Index.

Gasoline prices shot up 21.2% in March, accounting for nearly three-quarters of the monthly all-items increase.

Energy prices as a whole soared 10.9% in March, the largest one-month gain in the energy index in 21 years. 

Shelter costs also rose, climbing 0.3% in March from the month prior.

Food prices were unchanged over the month, but food prices out of the home rose 0.2%, and groceries fell by 0.2%.

Friday’s inflation numbers were roughly in line with economists’ expectations, who had predicted dramatic price shocks triggered by the Iran war. 

Inflation is now significantly higher than the Federal Reserve’s target of 2%.

Friday’s report indicates that with national gas prices now averaging above $4 a gallon and the war in Iran under a fragile ceasefire but unresolved, prices for everyday goods and services could keep climbing.

“The war in Iran and the resulting energy price shock have now landed squarely on the US consumer,” Olu Sonola, head of U.S. economics at Fitch Ratings, told Straight Arrow News. 

“Headline inflation looks set to move higher and could exceed 4% in the coming months if oil stays near $100 a barrel.”

Second inflation report shows price hikes before energy shocks

Friday’s inflation data for March followed data released a day earlier that showed prices climbing before the effects of the Middle East conflict fully materialized. 

The February Personal Consumption Expenditures price index, or PCE, — a separate inflation measure closely watched by the Fed — was released Thursday after delays tied to the federal government shutdown.  

That index showed prices rose 0.4% in February from January and 2.8% from the year earlier. 

While annual inflation was unchanged, it exceeded the target set by the Fed.

Excluding food and energy, so-called core PCE rose 3.0% from a year earlier and 0.4% on the month.

What this means for the economy

This week’s worrying inflation data has broad implications for the economy. 

When the cost of essential goods and services rise faster than wages, the affordability crisis deepens. 

According to the Urban Institute, a nonprofit research organization, nearly half of Americans cannot afford all the essential expenses they need to live securely.  

Rising inflation also makes the Fed less likely to cut interest rates, because cheaper borrowing can boost spending and push prices even higher.

Diane Swonk, chief economist at KPMG, wrote on X: “This is tough for the Fed” as it considers interest rate changes ahead of its meeting on April 28 and 29.  

“With headline inflation likely to test 4% soon, there is little chance the Fed will ease policy in the near term,” wrote Sal Guatieri, senior economist at BMO Capital Markets, in a newsletter shared with SAN.

New data show sluggish consumer spending

In addition to inflation, Thursday’s report showed that February’s consumer spending, a major driver of the U.S. economy, was underwhelming even before the full effects of the recent energy shock could show up in the data.

U.S. consumer spending rose by 0.5% in the month, about as expected, but after adjusting for inflation, spending increased by just 0.1%.

“A tepid rise in real consumer spending in February and another sharp rise in core prices,” Guatieri wrote, “suggest the U.S. economy faced challenges even before the Iran war.” 

Sonola said a key question is whether the energy shock will weigh down consumer spending. 

“For now, the Fed is likely to take some comfort from still-contained core inflation,” he said. 

But he warned that continuing energy shocks, tariff-related price increases and rising import prices are likely to add inflationary pressure in the months ahead.

US GDP growth slows

A separate report released Thursday by the U.S. Commerce Department pointed to a sharp slowdown in the U.S. economy. 

Gross domestic product, or GDP — the broadest measure of the nation’s economic output — grew at a sluggish annual rate of just 0.5% in the fourth quarter of 2025, covering October through December.

Ella Rae Greene, Editor In Chief