Rising Energy Prices Push Inflation Higher as Fed Faces Growing Pressure

The recent surge in US gasoline prices is expected to show up clearly in this week’s inflation data, highlighting renewed pressure on consumer prices.

Economists estimate that the consumer price index (CPI) rose 1% in March — the largest monthly increase since 2022 — driven primarily by a roughly $1 per gallon jump in gasoline prices following the Iran conflict.

Core inflation, which excludes food and energy, is projected to remain more contained, rising 0.3% month-over-month, according to Bloomberg survey data ahead of Friday’s Bureau of Labor Statistics release.

The spike in fuel costs reflects broader turmoil in energy markets. Oil prices climbed to nearly $120 per barrel last month after five weeks of conflict in the Middle East disrupted key infrastructure and led Iran to effectively shut the Strait of Hormuz — a move the International Energy Agency described as the most significant supply shock in market history.

OPEC+ signaled over the weekend that damage to regional energy assets could have lasting effects on supply, even after the conflict ends, while only approving a symbolic increase in output for next month.

Attention will also turn to the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures (PCE) index, due a day before CPI. Economists expect a 0.4% monthly increase for February — the third consecutive reading at that level — indicating that inflation was already proving sticky before the escalation in energy prices.

Taken together, persistent inflation pressures, a stabilizing labor market, and new risks stemming from geopolitical tensions complicate the Fed’s path toward rate cuts this year.

Recent labor market data, including strong payroll growth and a declining unemployment rate, further weaken the case for near-term easing. Upcoming data releases are unlikely to materially shift that outlook.

Investors will also watch the minutes from the Fed’s March meeting for insight into policymakers’ views on inflation risks and the economic fallout from the Middle East conflict.

Additional data this week includes the ISM services index on Monday and preliminary April consumer sentiment figures from the University of Michigan on Friday, alongside updates on personal income and spending.