U.S. inflation surged in March at the fastest monthly pace since June 2022, driven almost entirely by an energy shock tied to the Iran war.
The Consumer Price Index (CPI) rose 0.9% month-over-month - matching Wall Street's estimate - as energy prices jumped over 10.9% on the month. This marks the biggest monthly CPI jump in nearly four years.
The annual inflation rate soared from 2.4% in February to 3.3% in March, the highest since May 2024.
Core CPI, which strips out food and energy, came in at 0.2% month-over-month, below the 0.3% consensus. On an annual basis, the underlying inflation gauge rose 2.6% year-over-year, up from 2.5% in February and below expectations of 2.7.
That divergence between a hot headline and a contained core is the structural signal in Friday's report: the Iran war has not yet spread beyond the pump.
Energy Did The Work - And Then Some
The energy index surged 10.9% in March, the largest monthly increase since September 2005.
Gasoline alone jumped 21.2% on a seasonally adjusted basis - the largest single-month increase since the series was first published in 1967 - and accounted for nearly three-quarters of the entire monthly CPI gain.
Fuel oil rose 30.7%, its steepest climb since February 2000. The transmission chain was direct: the Iran war disrupted Strait of Hormuz flows in early March, oil prices spiked, and the pump repriced within days.
Food prices, by contrast, were unchanged on the month. Food at home fell 0.2%, as declines in dairy (-0.6%), eggs (-3.4%) and meats, poultry, fish and eggs (-0.6%) offset a 1.0% rise in fruits and vegetables.
Food away from home edged up just 0.2%.
Within core goods, airline fares rose 2.7% - the first visible sign of jet fuel cost passthrough into services,
March CPI - Key Category Moves (Seasonally Adjusted MoM)
CategoryMoM Changevs. February
Energy (total)+10.9%↑ from +0.6%
Gasoline (all types)+21.2%↑ from +0.8%
Fuel Oil+30.7%↑ from +11.1%
Airline Fares+2.7%↑ from +1.4%
Apparel+1.0%↓ from +1.3%
Shelter+0.3%↑ from +0.2%
New Vehicles+0.1%Flat
Food (total)0.0%↓ from +0.4%
Eggs-3.4%↓ from -3.8%
Used Cars & Trucks-0.4%Flat vs. -0.4%
Medical Care Commodities-1.0%↓ from 0.0%
Prescription Drugs-1.5%↓ from -0.2%
Personal Care Services-0.3%Flat vs. +0.3%
Source: BLS
Stocks Rise But The Fed Stays Cornered
Equity markets moved higher after the release.
Futures on the S&P 500 - as tracked by the SPDR S&P 500 ETF Trust
The soft core print drove the rally: a 0.2% monthly core read implies the Iran war's inflation impact is, for now, contained to energy - and energy shocks, unlike embedded services inflation, can reverse.
However, the data gives the Federal Reserve little room to cut rates, with core inflation still running above levels consistent with the Fed's 2% target.
Prediction market platform Polymarket now prices the probability of zero rate cuts in 2026 at 37%. The probability of just one cut stands at 26%, while two cuts have collapsed to 22% and three cuts to just 11%.
The open question is whether a soft core number in March buys the Fed any real optionality - or whether April and May data, when tariff effects and oil passthrough into services are expected to broaden, will close that window before it ever fully opens.
