U.S. consumer prices are projected to have posted their sharpest monthly increase in nearly four years in March, driven by a surge in oil costs tied to the conflict with Iran and the continued impact of tariffs, a combination that could further dampen expectations for interest rate cuts this year.

The expected rise in the Consumer Price Index follows a strong rebound in employment growth last month, signaling continued resilience in the labor market. Still, economists warn that a prolonged Middle East conflict could weaken job conditions, particularly if higher prices prompt households to scale back spending.

Fighting involving the United States, Israel and Iran has pushed global crude prices up by more than 30%, with the national average price of gasoline climbing above $4 per gallon for the first time in over three years. Although President Donald Trump announced a conditional two-week ceasefire on Tuesday contingent on Iran reopening the Strait of Hormuz, the agreement appeared tenuous.

Economists say the Labor Department’s CPI report due Friday will likely capture only the initial effects of the oil shock, which has also driven up diesel prices. A core measure of inflation that excludes volatile food and energy components is expected to show a more moderate increase.

"The top level CPI is going to look pretty ⁠ugly," said Brian Bethune, an economics professor at Boston College. "There is a second wave coming, which will be the fuel surcharges that will start to show up and cross to the other commodities, food in particular will be hit."

According to a Reuters poll, the CPI likely rose 0.9% in March, marking the biggest monthly gain since June 2022, when prices surged בעקבות the Russia-Ukraine war. Forecasts ranged widely, from a 0.4% increase to as much as 1.7%. In February, consumer prices edged up 0.3%.

On an annual basis, inflation is estimated to have climbed 3.3% through March, the largest year-over-year increase since May 2024, following a 2.4% rise in February. While still well below the 9.1% peak reached in June 2022, the anticipated jump highlights ongoing affordability pressures for households.

Trump secured victory in the 2024 presidential election with pledges to bring down prices.

WORKING FAMILIES HAVE BEEN BETRAYED

"Trump has betrayed working families," said Alex Jacquez, chief of policy and advocacy at Groundwork Collaborative, a think tank and progressive advocacy group. "The president's illegal war in Iran is just the latest in his misguided economic agenda that continues to pummel American families, small businesses and communities."

Excluding food and energy, the CPI is forecast to have increased 0.3% in March after a 0.2% gain the previous month. That would put annual core inflation at 2.7%. The modest pace, following a 2.5% year-over-year rise in February, is unlikely to reassure Federal Reserve officials, especially with expectations that inflation will accelerate further in April as secondary effects from higher energy costs take hold.

The Fed uses the Personal Consumption Expenditures price index as its primary gauge for its 2% inflation target, and those measures also showed solid monthly gains in February. Both core CPI and PCE inflation have been fueled in part by businesses passing along some of the costs of Trump’s broad tariffs to consumers, offsetting declines in rental inflation.

Tariffs have pushed up prices across a range of goods, including clothing, home furnishings, communication devices, personal care products, recreational items and vehicles.

Looking ahead, economists say the Middle East conflict could continue lifting core inflation through rising jet fuel costs, which would boost airline fares, as well as higher diesel prices that increase transportation expenses. Prices for fertilizer, plastics and other goods are also expected to rise.

"Even though we have had a pretty sharp drawdown in prices in the last couple of days, that increase we saw is in the pipeline, and we are going to continue to see increases in inflation," said Dan North, senior economist at Allianz Trade Americas. He noted that how long inflation remains elevated will depend on the duration of the conflict.

Persistent inflation has led some economists to conclude the Fed may hold off on cutting interest rates this year. Minutes from the central bank’s March 17–18 policy meeting, released Wednesday, showed a growing number of policymakers believed rate hikes could still be necessary. The Fed kept its benchmark overnight rate unchanged in the 3.50%–3.75% range.

Other economists argue that a weakening labor market could still open the door to rate cuts. Some also suggest that reduced consumer spending, driven by high gasoline prices, could limit businesses’ ability to pass on rising costs.

"When we look out, let's say towards the final quarter of 2026 and the end of the year, there may be some element that pushes the Fed to ease monetary policy, but that would be for bad reasons," said Gregory Daco, chief economist at EY Parthenon. "But we have to contend with this very real possibility that the next Fed move is a rate hike."