Inflation soars to hottest levels in two years as war in Iran drives gasoline prices higher

Inflation ramped up in March to the hottest levels since May 2024 as higher energy prices slammed the economy – putting another dent in the Federal Reserve’s path to interest-rate cuts.

The Consumer Price Index rose 3.3% in March over the past 12 months – a sharp rise from 2.4% the previous month, the Bureau of Labor Statistics said Friday.

Core CPI – which excludes volatile food and energy prices – jumped 2.6% over the year, up from 2.5% in February.

The heated inflation report was largely driven by a massive 21.2% monthly increase in gasoline prices, according to the Labor Department.

It is the first glimpse into how the Middle East conflict is impacting inflation, as Iran’s blockade of the Strait of Hormuz – a critical route for 20% of the world’s oil – has created the worst-ever energy supply disruption.

Fears of higher inflation sent consumer confidence tumbling to a record low in April, according to a University of Michigan survey released Friday.

In a bright spot for the economy, the core figure showed a relatively modest increase, indicating that energy prices have yet to leak into the broader economy – but experts are warning that it’s only a matter of weeks before Americans see higher prices on store shelves.

“The transportation costs have already gone up and the input costs that farmers, manufacturers, etc. are dealing with, they’ve already had to spend that money… and that will just flow through the system,” Joe Adamski, managing director of ProcureAbility, a supply chain consultancy, told The Post.

Energy supply shocks from the Iran war will likely hit clothing in about three months, while fast-fashion items will see sharp price increases almost immediately, Adamski said.

Processed foods will grow more expensive within the month, while farm-grown food will jump by this summer and fall, he added.

Oil benchmarks saw some long-awaited relief this week as traders hope a two-week ceasefire with Iran and reopening of the Strait of Hormuz will hold – but Brent crude is still at $95 a barrel, about 30% higher than prewar levels.

The overall energy sector rose 10.9% in March, and Americans are now shelling out roughly 40% more to fill up their tanks as national average gasoline prices hit $4.15 a gallon, per AAA.

Airline fares jumped 2.7% in March – up 14.9% over the past 12 months, according to the Bureau of Labor Statistics. 

Jet fuel is one of the main costs for most airlines. Many – including Delta, United, Southwest Airlines and JetBlue – have also started hiking their checked bag fees to offset rising fuel costs.

The International Air Transport Association, an airline industry group, warned this week that even if the strait remains open, it would take months for global fuel supplies to stabilize.

Grocery prices fell 0.2% in March, while costs for dining out rose 0.2% – but economists are expecting prices at the grocery store to heat up. 

Most food in the US is transported by trucks that run on diesel, which hit $5.68 a gallon on Friday. The pricey fuel is also used to power farm equipment, and the blockade of the strait has disrupted fertilizer supplies – raising agricultural costs for farmers.

The shelter index rose 0.3% in March and is up 3% over the year.

The real concern is how long the war will last and whether these price pressures will start to widen out, which could signal a stickier impact on inflation.

“The duration of the war matters as does the extremely important Strait of Hormuz, because if the supply shock is temporary then the economy can weather this storm and the Fed will have an opportunity to lower interest rates by the end of the year,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a note Friday.

“But if the inflation shock is more long-lasting they will have no choice but to sit on their hands for the entire year,” he added.

Central bankers have cautioned that the war could reheat inflation, though they stuck to their projection of one interest-rate cut this year at their meeting in March.

March’s CPI report also showed some signs of a tariff impact, as apparel rose 1% in March and is 3.4% higher over the past 12 months. 

Furniture, another tariff-sensitive category, dipped slightly in March, but is up 3.1% over the past year.