Key Points

  • According to data from the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 3.8% year-over-year in March, hitting a three-year high, driven primarily by surging energy prices, which outpaced the growth in average hourly wages.
  • Over the past year, energy prices rose 17.9% year-over-year, with gasoline prices up 28.4% and fuel oil prices up 54.3%. Food prices rose 3.2% year-over-year, while core CPI, excluding energy and food, rose 2.8% year-over-year.
  • Analysts at BofA Securities noted in a report that gasoline prices have climbed again since May, and overall inflation may continue to rise significantly in the future; services inflation excluding energy services rose 3.3% year-over-year, which is "uncomfortably high."

In-Depth Analysis

Economists say that since early March, war-driven price pressures have continued to rise, which could prompt the Federal Reserve to abandon its plans for rate cuts this year and begin leaning toward raising its key interest rate.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in a report: "Given that inflation is moving in the wrong direction and the labor market remains resilient, it is almost impossible for the Fed to cut rates in the near term, and we may even begin pricing in rate hikes next year."

According to the FedWatch tool from CME Group, interest rate futures traders see only a 2.8% likelihood that policymakers will cut rates this year, down from 22.9% a month ago.

Bill Dunkelberg, chief economist at the National Federation of Independent Business (NFIB), said Tuesday: "President Trump wants the new (Fed) chair to cut rates, but other members of the Federal Open Market Committee are unlikely to comply." He added: "In fact, some members of the Fed board favor raising rates to prevent AI spending and rising energy prices from pushing inflation higher—it's a difficult balance."

The Fed aims to keep inflation at 2%, and this year it has held its benchmark interest rate in a range of 3.5% to 3.75%.

Chicago Fed President Austan Goolsbee said Tuesday: "We've been above 2% for five years now, and that's not good." In a moderated discussion, he said: "Inflation had made progress, but then it stalled around 3% and stopped declining." He expressed caution about the rise in services inflation.

Goolsbee also cautioned: "But I wouldn't overreact. If the Middle East conflict and its impact on oil prices do prove to be temporary, then inflation should fall as quickly as it rose."

The NFIB cited a survey showing that small businesses rank inflation as their third biggest challenge after labor issues and taxes. The federation's April Small Business Optimism Index rose 0.1 point to 95.9, remaining below its 52-year average of 98 for the second consecutive month.

The NFIB quoted a financial business owner in Montana as saying: "As a business, we still feel the impact of high inflation from 2020 to 2024." The owner said: "Because inflationary pressures have pushed up the cost of nearly everything, people have less disposable income."

Since U.S. and Israeli warplanes struck Iran on February 28, surging gasoline prices have been one of the most visible signs of inflation. According to data from the American Automobile Association (AAA), the average price of regular gasoline has soared from $2.91 per gallon in February to $4.50, a 55% increase.

The U.S. Bureau of Labor Statistics said electricity prices rose 6.1% year-over-year last month, and transportation services prices rose 4.3%. Rising energy costs contributed more than 40% to the CPI increase.