By Lucia Mutikani
WASHINGTON, April 10 (Reuters) - U.S. consumer prices likely recorded their biggest increase in nearly four years in March as the war with Iran boosted oil prices and the pass-through from tariffs persisted, which would further diminish hopes for an interest rate cut this year.
The anticipated surge in the monthly Consumer Price Index would follow in the wake of a sharp rebound in job growth last month, which suggested the labor market remained stable. There are, however, concerns
that a prolonged conflict in the Middle East could undercut the labor market, especially if households respond to high prices by pulling back spending.
The U.S.-Israeli war with Iran has sent global crude oil prices surging more than 30%, with the national average retail gasoline price breaking above $4 a gallon for the first time in more than three years. Though President Donald Trump on Tuesday announced a two-week ceasefire on the condition that Tehran reopen the Strait of Hormuz, the truce appeared fragile.
The Labor Department's CPI report on Friday is most likely to only show the immediate effects of the oil price shock, which has also raised the cost of diesel. An underlying measure of inflation that excludes the volatile food and energy components likely increased at a moderate pace, economists predicted.
"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."
The CPI likely increased 0.9% last month, a Reuters survey of economists predicted. That would be the largest monthly gain since June 2022, when prices soared in response to the Russia-Ukraine war. Estimates ranged from a 0.4% gain to a 1.7% jump. Consumer prices rose 0.3% in February.
In the 12 months through March, the CPI was estimated to have advanced 3.3%. That would be the largest increase since May 2024 and follow a 2.4% rise in February. Though the CPI would be well below its 9.1% peak in June 2022, March's anticipated surge would underscore the affordability challenges facing consumers.
Trump romped to victory in the 2024 presidential election promising to lower 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."
Outside of food and energy, the CPI is forecast to have risen 0.3% last month after climbing 0.2% in February. That would translate to a year-on-year increase of 2.7% in the so-called core CPI. The expected moderate rise after a 2.5% advance in February will likely offer no comfort for officials at the U.S. central bank, with an acceleration expected in April as the secondary effects of the oil price shock filter through.
The Fed tracks the Personal Consumption Expenditures price indexes for its 2% inflation target. Those measures posted strong monthly gains in February. Both core CPI and PCE inflation have been driven by businesses passing on some of Trump's broad tariffs to consumers, offsetting the disinflationary trend in rents.
Tariffs have raised prices of goods, including apparel, household furnishings, communication, personal grooming products as well as recreational goods and vehicles.
In the months ahead, economists expect the Middle East conflict to lift core prices through expensive jet fuel that will raise airline fares, and diesel, which will increase the cost of goods transported by road. Prices of fertilizer and plastics, among 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. North added that the duration of the conflict would determine how long the inflation fallout persisted.
Rising inflation has left some economists believing the Fed would not reduce borrowing costs this year, a conviction that was reinforced by the release on Wednesday of minutes of the central bank's March 17-18 policy meeting, which showed a growing group of policymakers last month felt that rate hikes might be needed. The Fed left its benchmark overnight interest rate in the 3.50%-3.75% range.
Some economists still see a chance of a rate cut if labor market conditions deteriorate. Others argued that consumers pulling back as gasoline prices eroded their purchasing power could make it difficult for some businesses to pass on higher costs from oil prices.
"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."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci )
