US inflation surges to 3.3% in March as Iran war impact bites

Inflation in the United States rose sharply in March, government data showed on Friday, as higher energy prices due to the war in the Middle East hit Americans hard.

The nationwide sticker shock put pressure on President Donald Trump, who has ordered peace talks with Iran and faces mid-term elections in November.

The rate of inflation rose to 3.3 per cent year-on-year in March, the US Bureau of Labour Statistics (BLS) said. By comparison, this same consumer price index (CPI) was 2.4 per cent year-on-year a month earlier.

Gasoline prices surged by 21.2 per cent between February and March -- the largest monthly increase since the government began publishing a related index in 1967, the US Bureau of Labour Statistics (BLS) said.

Markets had anticipated the surge, according to the consensus published by MarketWatch.

Despite being the world’s top producer of crude oil, the United States also felt the pain, as prices at the gas pump shot up.

A gallon (3.78 litres) of regular gasoline currently costs an average of $4.15 in the United States, compared to approximately $3 just before the war.

The Trump administration – elected in part on a promise to quash inflation – maintains that the war’s economic disruptions will be temporary.

Reacting to the data, White House spokesperson Kush Desai said the US economy “remains on a solid trajectory.”

Economic advisor Kevin Hassett claimed some wins for the White House, citing drops in the price of eggs, beef and concert tickets on Fox News.

US Vice President JD Vance said he hoped for a “positive” outcome as he departed Washington for US-Iran peace talks in Pakistan this weekend.

But experts predicted more economic pain ahead due to the war in Iran, especially for middle and lower-income households already squeezed by rising energy and airfare prices.

Heather Long, chief economist at Navy Federal Credit Union, said that inflation soared in March to the highest level in almost two years.

“This is only the beginning. Food prices, travel and shipping costs are all going up in April and will exacerbate the pain,” she said.

“March CPI was as expected, so no surprises. But there is a huge increase in fuel prices, boosting inflation,” Christopher Low of FHN Financial told AFP.

“And we got the news last night that the ceasefire is not being honored by either side, apparently,” he said. “There’s still very little traffic through the Strait of Hormuz.”

Some economists calculate the oil price surge will cost each US household at least $350 per household.

Consumer sentiment also dipped sharply -- 11 percent -- this month, according to a University of Michigan survey. During the Federal Reserve’s most recent meeting in mid-March, Chairman Jerome Powell said that the war risked delaying efforts to bring inflation under control in the United States.

The US central bank’s target for inflation is two percent -- an objective it has not met in five years due to the Covid pandemic, the war in Ukraine and tariffs.

The dollar slipped on Friday, putting it on track for its largest weekly drop ‌since January, as investors sold safe-haven assets on the assumption that oil shipping will resume if a ceasefire holds in the ​Gulf. The dollar had ⁠towered in March as one of the few bastions of safety as the Iran war sent ‌oil prices surging and hit stocks and ‌gold, while inflation worries pressured bonds.

But since a fragile ceasefire was reached on Tuesday, those positions are being unwound.

The euro has rallied 1.8% this week to trade at $1.173, while sterling has gained 2% since Monday to $1.347.

The risk-sensitive Australian and New Zealand dollars are set for ‌weekly rises of nearly 3% on the dollar, with the Aussie trading just above 70 cents.

“The market still seems generally optimistic, despite some of the ceasefire fraying,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. Data on Friday showed that US consumer prices rose by the most in nearly four years in March as the Iran war boosted oil prices and the pass-through from tariffs persisted. The increase was largely in line with expectations and the markets’ direction is more likely to hinge on the outcome of weekend peace talks between the US and Iran in Islamabad, analysts said.

“People were buying the US ​dollar when the war was at its most intense moment and now they’re selling as the tail risk ‌of a really bad outcome has faded quite a bit,” said Jason Wong, senior strategist at BNZ in Wellington.

“Even though it still looks a bit shaky, the ceasefire removing that tail risk is important from a sentiment point of view,” he said, adding that the mood ⁠could turn very quickly if the anticipated weekend peace talks fail to deliver progress.

“If there are positive talks, that would be dollar-negative. And if we get to Monday and talks went badly and there’s still a lack of ships ... things could ​turn around quickly,” ‌said Wong.

There has been little progress so far in the Strait of Hormuz. In the first 24 hours of the ‌ceasefire, just a single oil products tanker and five dry bulk carriers sailed through the passage that before the war accommodated about 140 ships a day.

The yen, under pressure for years from Japan’s low rates and more recently from its vulnerability to high oil prices, rose above its lows ‌against the dollar - but ‌not by much, and was sold against other currencies. The yen slipped ⁠to 159.255 per dollar on Friday. The U.S. dollar index dipped 0.22% and was 1.6% lower so far ‌this week.

Agencies