The U.S. Consumer Price Index (CPI) increased by 0.9% in March 2026, the largest monthly rise since June 2022, according to the Bureau of Labor Statistics. The annual inflation rate reached 3.3%, up from 2.4% in February.
"The economy has just taken a direct inflation hit as a result of the war in the Middle East." — Christopher Rupkey, chief economist at FWDBONDS
The increase was primarily driven by a massive surge in energy prices, with gasoline prices rising 21.2%. Data from the Producer Price Index (PPI) also showed a 4% annual increase in March, the highest in over three years.
Consumer Price Index (CPI) Data
Headline Inflation
- The CPI increased by a seasonally adjusted 0.9% in March 2026.
- Over the 12 months through March, the CPI advanced 3.3%.
- This is the highest annual rate since April 2024.
- The monthly and annual figures were in line with the Dow Jones consensus forecast.
Key Components
- Energy: Energy costs surged 10.9% for the month. Gasoline prices rose 21.2%, accounting for nearly three-quarters of the overall monthly price increase.
- Core CPI (excluding food and energy): The core CPI rose 0.2% for the month and 2.6% from a year ago. Both core figures were 0.1 percentage points below forecasts.
- Food: Food prices were unchanged for the month and were up 2.7% annually. Food at home prices fell 0.2%.
- Services: Services prices excluding energy rose 0.2% monthly and 3% annually. Shelter costs increased 0.3% monthly and 3% annually.
- Other categories: Airline fares increased 2.7%, and apparel prices increased 1%. Prices for new vehicles rose 0.1%. Prices declined in categories including medical care, personal care, and used cars and trucks.
Context of the Increase
The Bureau of Labor Statistics report linked the surge in energy costs to a conflict involving Iran that began in late February. A cease-fire between the U.S. and Iran was established in April, which led to a moderation in energy prices in that month.
Producer Price Index (PPI) Data
The U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI), which measures the average change in prices received by producers, increased by 0.5% in March from February. On an annual basis, the PPI rose 4.0%, the highest rate in three years.
A 15.7% rise in gasoline prices accounted for nearly half of the monthly increase. The March PPI increase was lower than the 1.1% monthly rise economists had forecast. Falling food prices and flat services prices moderated the overall increase. The core PPI, which excludes food and energy, rose 0.1% for the month, keeping its annual rate steady at 3.8%.
Economic Context and Related Indicators
Pre-Conflict Indicators
Prior to the conflict, the core Personal Consumption Expenditures (PCE) price index, a key inflation measure for the Federal Reserve, rose 3% in February compared to a year earlier. The economy grew at a 2% annualized rate in the first quarter, rebounding from a 0.5% rate in the fourth quarter of 2025. Consumer spending growth slowed, while government spending increased 4.4%.
Energy Markets
- Global crude oil prices surged more than 30% following the start of the conflict.
- The national average retail price for gasoline exceeded $4 per gallon for the first time in over three years.
- Following a temporary ceasefire agreement, oil prices dropped, but U.S. crude oil prices remained about 10% higher than before the conflict and nearly 30% higher since the start of the year.
- The International Energy Agency (IEA) revised its forecast for global oil demand for 2025, projecting a decline of 80,000 barrels per day, a reversal from a previous forecast of an increase of 850,000 barrels per day. The agency attributed the March decline to attacks on energy infrastructure and the closure of the Strait of Hormuz.
Broader Economic Impact
- The University of Michigan's consumer confidence survey recorded a 10.7% drop to its lowest level on record. Survey director Joanne Hsu stated that comments from respondents showed many consumers attributed unfavorable economic changes to the conflict with Iran.
- The prices index in the Institute for Supply Management's survey of managers increased from 63 in February to 70.7 in March, its largest one-month increase in 13 years.
- U.S. GDP growth for the last quarter of 2025 was revised down from an initial estimate of 1.4% to 0.5%.
Labor Market
The U.S. labor market added 178,000 jobs in March, and the unemployment rate fell to 4.3%. This followed a sharp rebound in job growth from the previous month.
Policy Implications and Federal Reserve
Federal Reserve Actions
- The Federal Reserve left its benchmark overnight interest rate unchanged in the 3.50%-3.75% range following its March policy meeting.
- Markets are pricing in a greater than 97% chance that rates will remain unchanged at the April meeting.
Policymaker Views
- Minutes from the Federal Reserve's mid-March meeting indicated that the spike in oil prices raised greater concerns about upside risks to inflation than downside risks to the labor market.
- The minutes showed that a growing number of policymakers felt interest rate increases might be needed.
- Cleveland Federal Reserve President Beth Hammack stated that an interest rate hike might be necessary if inflation continues to exceed the central bank's 2% target.
- Chicago Fed President Austan Goolsbee stated that progress on stabilizing prices had stalled and expressed concern that prolonged inflation above the target could become embedded in the economy.
Analyst Commentary
- Economists cited in various reports indicated that the March core CPI data likely captured only the immediate effects of the oil price shock, with secondary effects expected in subsequent months.
- Some economists believe the firming inflation data reinforces expectations that the Federal Reserve will not reduce interest rates this year, while others see a potential for rate cuts if labor market conditions deteriorate.
- Economists expect the Middle East conflict to continue affecting prices through higher costs for jet fuel, diesel, fertilizer, and plastics.
Treasury Department Statements
Senator Ron Wyden (D-Ore.) stated in a letter that Sriprakash Kothari, an adviser to Treasury Secretary Scott Bessent, told Wyden's staff he had not performed analysis related to energy markets or other economic facets before military action against Iran began, and was not aware of anyone at Treasury who had. The letter cited prior intelligence assessments about potential disruptions to energy supplies.