US consumer inflation accelerated to its highest monthly reading in nearly four years in March as the Middle East conflict sent energy prices sharply higher.
The consumer price index advanced 0.9% last month, its strongest pace of growth since June 2022, the Bureau of Labor Statistics reported Friday. The latest print met a Bloomberg-polled consensus view. Prices rose 0.3% in February.
Annually, inflation grew to 3.3% from February's 2.4% rise, falling short of Wall Street's 3.4% projection.
"The fallout of the US/Israel-Iran war was evident in the March consumer price index," Oxford Economics Lead US Economist Bernard Yaros said in remarks emailed to.
Earlier in the week, the US and Iran agreed to a two-week ceasefire. The war, which began at the end of February, spread across the Middle East and curtailed shipments through the crucial Strait of Hormuz, driving energy prices sharply higher.
Energy price growth jumped about 11% sequentially in March, led by a 21% surge in gasoline, accounting for nearly three quarters of the headline increase, official data showed. Fuel oil prices rallied 31%.
The energy index climbed around 13% year-on-year.
Yaros cautioned that the next CPI print will be "uncomfortably strong" as pump prices continue to rise.
"A statistical quirk associated with the government shutdown will unwind, adding another unusual source of upward pressure to the April CPI," Yaros said. "Also, the energy price shock will increasingly bleed into food and other core prices."
Monthly food prices were flat, while the measure advanced 2.7% annually, official data showed.
Core inflation, which excludes the volatile food and energy components, accelerated to 2.6% annually in March from February's 2.5%, trailing the market's view for a 2.7% increase. The metric held steady at 0.2% sequentially, while the Street was looking for growth to speed up to 0.3%.
"While core prices came in a bit softer than expected, it feels a bit backward looking as the surge in energy costs are likely to pressure prices for other goods and services higher in the months ahead," TD Economics Senior Economist Thomas Feltmate said in a note. "This will be happening alongside the continued pass-through of higher tariff costs, suggesting inflation's near-term direction of travel is likely to be higher."
On Thursday, government data showed that US inflation, as measured by personal consumption expenditure, accelerated sequentially in February, although the Federal Reserve's preferred core inflation metric held steady.
"The (Fed) will look past the energy supply shock as a onetime boost to inflation and will watch for any weakening in the job market," Yaros said Friday. "As long as long-run inflation expectations remain well anchored, we still think the Fed will step in later this year and cut interest rates twice to shore up the labor market in the face of this energy supply shock."
Markets widely expect the central bank to keep its benchmark lending rate unchanged later this month, according to the CME FedWatch tool.