Sharp Rise in Gas Prices Drives Inflation Spike in the US

Last month, the strongest monthly increase in gasoline prices in sixty years caused a significant acceleration of inflation in the United States, posing major challenges to Federal Reserve officials and exacerbating considerable political hurdles facing the White House.

Consumer prices rose by 3.3% in March compared to the previous year, the Labor Department announced on Friday, marking 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 this kind in over four years.

This is the first inflation measure to reflect the effects of the war in Iran. Soaring gasoline prices will strain the budgets of low and middle-income households, making it more challenging to purchase other essential products such as food and rent.

Excluding volatile food and energy prices, core prices rose by 2.6% in March compared to the previous year, up from 2.5% in February. And 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 key question for now is how long the shock of oil and gas prices will last and whether it will lead to a broader and more lasting inflationary push, similar to what happened in the spring of 2022 after Russia’s invasion of Ukraine. At present, economists believe it is unlikely that the United States will experience a generalized increase similar to that of a few years ago, when inflation exceeded 9%.

Nevertheless, the evolution of the war and its impact on inflation in the coming months remain highly uncertain. Despite a fragile ceasefire, little has changed in the Strait of Hormuz, a chokepoint through which millions of barrels of oil usually pass each day.

“It’s painful in the short term,” said Michael Pearce, chief US economist at Oxford Economics. “It will become even more painful in April,” when further gasoline price hikes will drive up inflation.

However, Mr. Pearce suggested that the impact may be shorter-lived than after the pandemic: “I think the situation resembles more of a brief and sharp shock than what we experienced in 2022.”

Industries dependent on oil and gas are facing higher costs, particularly airlines, who have passed these higher costs on to travelers. Fares soared 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 rose by only 1.9% compared to the previous year, but economists believe they will increase in the coming months as diesel prices rise. Most food items are transported by truck.

The increase in fuel prices “contributes to rising production costs throughout the food supply chain and could exert 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 increase, costs related to the production and delivery of food items also rise.”