Inflation surged in March due to Iran war and tariffs

War-related price pressures worsened inflation in March, which the Federal Reserve was already struggling to regulate, reports Colby Smith for The New York Times.

The Consumer Price Index, or CPI, rose to 3.3% in March, making the Federal Reserve cautious of cutting interest rates. This is the highest monthly gain, 0.9%, since the post-pandemic inflation surge in June 2022.

The Consumer Price Index rose to 3.3% in March 2026. (Click to enlarge)

“Core” inflation, which doesn’t include volatile food and energy prices, rose to 2.6%, an increase from 2.4% last month, which isn’t as alarming to the Federal Reserve.

Policymakers worry that rising energy prices will “spill over into other sectors, affecting inflation more persistently,” Smith reports.

The Federal Reserve is also worried about businesses and manufacturing companies scaling back on hiring to offset rising input costs, potentially threatening the labor market, reports Smith.

The Bureau of Labor Statistics data listed below illustrates how commodity prices reacted to the war before last week's temporary cease-fire.

• International oil benchmark rose 50%, now down to 30% higher than prewar
• Gas prices rose 40% since February
• Energy index rose 11%
• Fuel oil rose 30.7% over the last month
• Other motor fuels including diesel rose 30.8%
• Airfares rose 2.7%, up 14.9% from a year prior

Excess inflation in the core goods category can be explained by recent tariffs, according to researchers at the Federal Reserve.

“Without evidence that inflation is in retreat, the Fed will likely find it hard to justify cutting rates below the current 3.5 percent to 3.75 percent level,” Smith reports. “What could prompt them to act sooner, however, is if the labor market deteriorates rapidly.”