A man shops for butter at a supermarket in Houston, Texas, on March 17, 2026.
Ronaldo Schemidt | AFP | Getty Images
Consumer prices spiked in March as the Iran war sent energy costs soaring and took the Federal Reserve further from its inflation target, according to a Bureau of Labor Statistics report Friday. Underlying inflation, however, was relatively tame.
The consumer price index increased a seasonally adjusted 0.9% for the month, putting the annual inflation rate at 3.3%, pushed by a 10.9% surge in energy costs. Both numbers were in line with the Dow Jones consensus. The annual rate was the highest since April 2024 and up from 2.4% in February.
However, excluding food and energy, core prices rose much less – just 0.2% for the month and 2.6% from a year ago, both 0.1 percentage point below forecast, indicating that underlying inflation was contained. There even were even pockets of outright price declines, as medical care, personal care, and used cars and trucks all fell during the month.
The Iran conflict was the story for the monthly inflation reading, as gasoline soared 21.2%, accounting for nearly three-quarters of the headline price increase, according to the BLS.
Energy prices have moderated in April, since a ceasefire between the U.S. and Iran that has established a tenuous peace in fighting that began at the end of February. Fed officials then could look through the March spike and concentrate more on the underlying path of inflation, which has remained above target for five years.
Markets already had been pricing little chance of a rate cut through the rest of 2026, though Fed officials at their March meeting indicated a tilt toward a quarter percentage point reduction, with the timing highly uncertain.
Traders showed little initial reaction to the report, with stock market futures slightly higher and Treasury yields mixed.
“We believe the Fed will look through the energy-driven noise so long as these factors hold,” said Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management. “The Fed has room to be patient, and every reason to do so. Today’s number buys the Fed time, but the real test lies ahead.”
Policymakers have been particularly attuned to services prices as signs of underlying inflation excluding tariff impact and the war.
Services excluding energy rose 0.2% for the month and were up 3% from a year ago. Similarly, shelter was up 0.3% monthly and 3% annually, tied for its lowest level since August 2021.
Food prices were unchanged for the month and up 2.7% annually, with food at home falling 0.2%. Meat prices declined 0.6% while eggs fell another 3.4% and have tumbled 44.7% over the past year. New vehicle prices rose just 0.1%.
There were some signs of tariff and war impact: airline fares jumped 2.7% while apparel climbed 1%.
The surge in the CPI meant that real earnings for workers decreased 0.6% for the month, as average hourly earnings rose just 0.2%. For the 12-month period, real average hourly earnings increased 0.3%.
