Inflation is about to explode! March could be one of the months with the fastest price increases in the United States in decades.

Ask AI · How Could a U.S.-Iran War Push Up America’s Inflation Rate?

Caixin (Cailianshe) April 8 News (Editor: Xiaoxiang) Just as Trump has agreed to a two-week U.S.-Iran ceasefire, the U.S. economy may also issue a series of harsh warning signals later this week. For Trump and his White House aides, amid polling approval ratings sliding steadily, “TACO” itself might also have become the only feasible path in front of them……

Insiders said that because the Iran war has pushed up gasoline prices, the U.S. CPI in March may jump significantly, becoming one of the biggest months in history for the surge in inflation.

According to a survey of economists by the media, economists expect the U.S. CPI report, scheduled to be released on Friday, to show that in March, the U.S. inflation rate on a month-over-month basis will rise by 0.9%.

This expected month-over-month increase in itself is a rather striking figure. Notably, since 1981, a single-month month-over-month price increase of 0.9% or more has only occurred 16 times, and this would also be the biggest month-over-month increase since June 2022—when the U.S. CPI year-over-year increase had exceeded 9%.

On a year-over-year basis, economists forecast that this month-over-month increase will lead to a 3.3% rise in the March CPI year-over-year, which would also mark the highest level since April 2024.

If the CPI report ultimately released on Friday meets the expectations above, it will highlight the economic cost the U.S. is facing from the U.S.-Iran war. The war has caused energy prices to surge sharply. The conflict has led to the closure of the Strait of Hormuz between Iran and Oman, a crucial waterway that typically carries 20% of the world’s oil supply.

Over the past month or more, this geopolitical conflict has already caused crude oil prices to skyrocket worldwide, thereby pushing up gasoline and diesel prices. Within the five weeks since the outbreak of the war, the U.S. gasoline price per gallon has risen by more than $1. Economists say that as the war continues, the rise in energy prices will intensify and may spread to other products as transportation companies pass higher fuel costs on to customers.

At present, the surge in gasoline prices has squeezed U.S. household budgets, forcing money to flow into other areas and harming consumer spending. Meanwhile, higher inflation is also forcing the Federal Reserve to keep key interest rates at relatively high levels for longer, thereby raising borrowing costs for various types of loans. Both trends drag on economic growth.

In a commentary, Jim Reid, Head of Macro Research at Deutsche Bank, wrote, “The impact of the energy price shock will fully become evident.”

Inflation expectations rise in tandem

Perhaps even more worrying is the rise in inflation expectations in tandem. A survey released by the New York Fed on Tuesday showed that as the war in the Middle East broke out, consumers expected gasoline and food prices to rise, with March’s short-term inflation expectations jumping by the largest amount in a year.

Based on the median of respondents’ answers in the New York Fed’s monthly “Survey of Consumer Expectations,” U.S. consumers expect inflation to average 3.4% over the next 12 months, up 0.4 percentage points from February. The three-year inflation expectation rose slightly to 3.1%, while the five-year inflation expectation remained unchanged at 3%.

The survey was conducted from March 2 to March 31, reflecting that consumer pressure increased after the United States and Israel launched their first airstrikes against Iran. The war has led to a surge in oil prices and brought new upward pressure to inflation—over the past five years, the U.S. inflation rate has stayed above the Federal Reserve’s 2% target.

Respondents said they expect gasoline prices to rise 9.4% over the next year, up 5.3 percentage points from before the conflict, reaching the highest level since March 2022. They expect food prices to rise 6% over the next year, up 0.7 percentage points from the February survey.

Households have become more pessimistic about their own financial situations, with the proportion of households that believe their financial situation has worsened compared with a year earlier increasing. The proportion of households expected to see their financial situation worsen over the next year also rose to its highest level since April 2025.

So far this year, Federal Reserve officials have kept the benchmark interest rate unchanged. Several policymakers said that the current rate level helps balance risks on both employment and inflation. After U.S. nonfarm payroll growth sharply slowed in February according to Labor Department data released last week, March saw a rebound.

However, the survey shows that consumers’ views of the labor market are mixed. On one hand, respondents believe the likelihood of a higher unemployment rate after a year is greater, and the risk of unemployment over the coming year has risen slightly. But people also believe that opportunities to find a job after becoming unemployed have increased.

Some Federal Reserve officials who are worried that inflation remains too high think the labor market is stabilizing and have hinted that if inflation continues to be stubbornly above the target level, the Federal Reserve may need to raise rates. However, among Fed decision-makers, this view still remains in the minority. Based on the pricing of federal funds futures contracts, investors currently broadly expect that the Federal Reserve will keep the benchmark interest rate unchanged this year.

(Caixin: Xiaoxiang)