Quick Read Key Points

  • March inflation hit its highest level since 2022, with gasoline prices surging due to the war, dragging this month's consumer confidence index to its lowest level since records began in 1952.
  • The U.S. Bureau of Labor Statistics (BLS) reported Friday that the March Consumer Price Index (CPI) rose 0.9% month-over-month and 3.3% year-over-year, with the gasoline price index surging 21.2%, contributing about 75% of the increase. A University of Michigan survey showed consumer confidence plunged 11% in April, with assessments of personal finances also falling 11% due to soaring prices and declining asset values.
  • "Many consumers attribute the adverse economic changes to the conflict with Iran," Joanne Hsu, director of the university's consumer survey, said in a statement. She noted that 12-month inflation expectations rose from 3.8% in February to 4.8%.

Deep Insights

Hsu said concerns about inflation damage from the war with Iran spread across all demographic groups—regardless of age, income, or political affiliation—pushing this month's consumer confidence index down to 47.6 from 53.3 in March.

"Americans are unhappy about the war with Iran, and they are expressing it through their actions," said Heather Long, senior economist at Navy Federal Credit Union, adding that consumers have "made it clear their top concern is affordability."

"Spending an extra $50 a month on gas is a real tax on the average American household, especially for middle- and low-income families," Long said.

Consumer pessimism about long-term price pressures intensified, Hsu said, with 5-to-10-year inflation expectations rising to 3.4% this month from 3.2%.

So far, there is little sign that rising energy prices have seeped into the broader economy. BLS data showed that excluding volatile food and energy prices, core CPI rose only 0.2% in March and 2.6% year-over-year, compared with a 2.5% annual increase in February.

"Once consumers are convinced that supply disruptions from the conflict with Iran have ended and gasoline prices have eased, economic expectations may improve," Hsu said. She noted that all but 2% of the survey interviews were completed before the U.S. and Iran agreed to a two-week ceasefire on April 7.

Economists believe that prolonged shipping restrictions in the Strait of Hormuz would push up inflation across the economy.

"A disruption in the Strait of Hormuz is a multi-commodity supply chain shock, involving fertilizers (urea, ammonia, potash, phosphates), petrochemicals (methanol, plastics, feedstocks), industrial metals (aluminum), energy transition minerals (graphite, sulfur), and specialty gases (helium)," said Ben Emons, founder of FedWatch Advisors, in a Substack article.

"These commodities collectively have zero direct weight in the CPI, but their effective weight—reflecting indirect impacts through food, housing, healthcare, and goods—exceeds 20%," he said.

"This is exactly where the affordability crisis hits hardest, because food, housing, and healthcare account for over 75% of household budgets (!)," Emons wrote.

BLS data showed the energy price index surged 10.9% in March, the largest increase since 2005. The fuel oil price index soared 30.7% in March, the biggest gain in 26 years.

The BLS said rising fuel prices pushed transportation services costs up 0.6% month-over-month in March and 4.1% year-over-year, compared with a 0.2% increase in February.

Several airlines, including United Airlines and Delta Air Lines, have announced fee increases or planned price hikes in recent weeks.