The consumer price index (CPI) rose in March as economic shocks ripple through the economy from the war in Iran, the Bureau of Labor Statistics (BLS) reported Friday.
The CPI increased 0.9% for the month, pushing the annual inflation rate to 3.3%, largely due to a 10.9% spike in energy costs resulting from the war in Iran. President Donald Trump announced that the U.S. agreed to a Pakistani-mediated ceasefire on Tuesday, though it has proven to be tenuous due in part to Israel repeatedly striking targets in Lebanon.
The annual rate reading was the largest recorded since April 2024 and increased from 2.4% in February, CNBC reported. Gasoline prices skyrocketed by 21.2% in March as the Strait of Hormuz, a major route for shipping oil, remains largely closed due to the war, accounting for three-quarters of the inflation increase.
Food prices increased 2.7% while airfare increased by the same amount, thanks to an increase in jet fuel prices due to the Strait’s closure.
Americans were already paying more for goods before the Feb. 28 launch of Operation Epic Fury, with the personal consumption expenditure index, which excludes energy and food, registering at 3% growth year over year, a full percentage point above the Federal Reserve’s goal of 2% inflation, the Bureau of Economic Analysis reported Thursday.
Rising oil prices caused by the war-induced slowdown in shipping through the Strait of Hormuz weighed heavily on market respondents in the Institute for Supply Management’s (ISM) monthly service sector index. Prices in the ISM index registered their highest reading since October 2022, and the supplier deliveries index was lower compared to February due to rising fuel prices and shipping disruptions caused by the conflict.
“The U.S.-Israel military operations against Iran have created significant uncertainty for our Omani frankincense imports. Threats to close the Strait of Hormuz and rising war-risk surcharges are pressuring regional logistics costs, even for air freight,” a wholesale trader responded in the monthly survey.
Market analysts, such as Moody’s Analytics chief economist Mark Zandi, also warned that business sentiment was declining in a note on his firm’s website on Monday. “Global business sentiment is volatile week to week, but it has meaningfully weakened since the conflict with Iran began over a month ago. Higher energy prices, interest rates, and lower stock prices are weighing on confidence,” Zandi wrote.
The University of Michigan Consumer Sentiment Index registered a 6% decline in March, with declines seen across all ages and political parties.
The war’s effects have spilled over into the U.S. housing market as well, with real estate agents reporting that consumers were concerned with the economy and rising mortgage rates, according to CNBC. Mortgage rates hit a low of 5.99% the day before the conflict began, but now hover around 6.5%, CNBC reported.
Increasing jet fuel costs have forced airlines to scramble to cover the rising prices, with Delta announcing Tuesday that the airline would increase prices on checked bags for passengers beginning Wednesday. Delta’s competitors, JetBlue and United Airlines, previously announced similar fee increases on checked bags to cover rising fuel costs.
As the price of an average gallon of gas reached $4.14 in the U.S. on Tuesday, Goldman Sachs was warning that some Southeast Asian countries could run out of oil completely, while the U.S. could lose 60% of its fuel oil capacity.
“Based on conversations with Prime Minister Shehbaz Sharif and Field Marshal Asim Munir, of Pakistan, and wherein they requested that I hold off the destructive force being sent tonight to Iran, and subject to the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz, I agree to suspend the bombing and attack of Iran for a period of two weeks,” Trump wrote announcing the ceasefire on Truth Social Tuesday. “This will be a double sided CEASEFIRE! The reason for doing so is that we have already met and exceeded all Military objectives, and are very far along with a definitive Agreement concerning Longterm PEACE with Iran, and PEACE in the Middle East.”
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