Inflation spiked in March, rising nine-tenths of a percentage point to 3.3% on the year, as towering energy prices drove up the headline number.
The Bureau of Labor Statistics reported the update to the consumer price index on Friday. The inflation reading is the highest since 2024.
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In March alone, prices rose 0.9%.
The report shows that the war in Iran is driving up inflation, which had been steady for much of the past year, albeit still above the 2% Federal Reserve target. The conflict is having the effect of worsening affordability, which was already a top concern for voters.
The increase was almost entirely driven by spiking energy prices.
Before the war began in late February, crude oil was trading at about $67 a barrel. That price shot up to $112 earlier this month — a massive increase that rattled consumers and caused gas prices to spike.
“The economy has just taken a direct inflation hit as a result of the war in the Middle East and it is an open question whether the seeds of its own destruction have not been layed,” said Chris Rupkey, chief economist at FWDBONDS. “Every recession since the 70s has been preceded by an energy price shock and if consumers thought there was a cost of living crisis before, get ready, as you haven’t seen nothing yet.”
Families are feeling the strain of higher prices for goods and services they use routinely. For instance, restaurant prices have gone up 3.8% in just the past year. The price of beef and veal has risen a notable 12.1% over the past year. Fruit and vegetable prices have increased by 4%, on average.
Clothing prices have risen 3.4%, while electricity prices have jumped 4.6% in the past year.
On the other hand, families looking to buy cars are seeing some relief. Used car prices are down 3.2% from March 2025.
Trump has seen his economic approval ratings fall dramatically since he entered office, in large part because of voter discontent with affordability issues. The higher inflation prints could imperil Republicans in the midterm elections.
Notably, core inflation, a measure that strips out volatile food and energy prices, rose just one-tenth of a percentage point to 2.6% for the year ending in March.
This latest inflation report comes after the Fed voted to hold interest rates steady at its meetings in January and March, pausing after cutting interest rates three times last year.
While the Fed continues to monitor slowdowns in the labor market, it has had to remain attentive to the fact that inflation is running above target. At the same time, it has faced pressure from the White House for the central bank to cut rates.
The Fed’s next meeting is set for later this month — investors and Fed watchers do not expect a rate cut anytime soon.
In addition to inflation, the Fed is also closely tracking employment data, particularly given that there has been a gradual decline in job growth over the past year.
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The economy showed surprising strength by adding 178,000 jobs in March, and the unemployment rate fell slightly to 4.3%, the Bureau of Labor Statistics said in an update last week.
With revisions to the numbers for January and February, the three-month moving average of job gains was 68,000 in March.