US CPI rises sharply as oil prices rise; Fed rate-cut window may have closed

U.S. consumer prices rose sharply in March, according to an April 10 report from the U.S. Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI) increased 0.9% month over month, the largest monthly gain since June 2022, when energy and other goods surged amid the Russia-Ukraine war.

Oil shock and renewed cost-of-living pressure

The March CPI rise reflects both the immediate impact of higher energy prices and broader, ongoing cost-of-living pressures. A conflict involving the U.S., Israel and Iran has pushed global crude oil prices up more than 30%, driving the average U.S. gasoline price above $4 per gallon for the first time in more than three years.

Over the 12 months through March, CPI rose 3.3%, up from 2.4% in February. Economists surveyed by Reuters ahead of the report had projected March CPI to rise 0.9% from February and 3.3% from a year earlier, meaning the outcome was broadly in line with expectations.

Core inflation remains elevated

Excluding the highly volatile food and energy categories, core CPI rose 0.2% in March from February, matching the increase in February. On a year-over-year basis, core CPI rose 2.6%, slightly higher than February’s 2.5%.

Analysts expect consumer prices in the United States to accelerate further in April as the effects of higher gasoline prices become more entrenched.

Consumer sentiment deteriorates

The University of Michigan’s regular survey, released on April 10, showed consumer sentiment fell to a record low in April amid concerns about higher energy prices and the broader impact of the Gulf War. The index’s overall sentiment reading dropped to 47.6, down 10.7% from March and the lowest in the history of the survey.

Labor market resilience, but risks ahead

Employment growth rebounded strongly in March, suggesting the labor market remains resilient. However, concerns remain that a prolonged Middle East conflict could weaken labor conditions, particularly if households respond to higher prices by trimming spending.

Fed focus shifts to PCE inflation

For the Federal Reserve, the inflation measure watched more closely than CPI is the Personal Consumption Expenditures (PCE) price index. The Commerce Department’s March 9 report showed overall PCE prices rose 2.8% in February from a year earlier. The PCE core index, excluding energy and food, rose 3% year over year. Both measures are above the Fed’s 2% inflation target.

Even before the Gulf War began, core CPI and PCE had been affected by businesses passing some tariff costs onto consumers. The impact is described as larger than the disinflation in housing rents.

Outlook for inflation and rate expectations

Looking ahead, analysts expect the Middle East conflict to push core inflation higher. They cite higher jet fuel costs that could raise airfares, along with higher diesel costs that may increase road freight expenses. Higher prices for fertilizer and plastics, along with other commodities, are also expected to contribute.

The pickup in inflation has led some economists to believe the Fed will not cut rates this year. That view is reinforced by the Fed’s March 17-18 policy minutes released this week, which indicated a larger group of policymakers believed there may be a need to raise rates to combat inflation.

To date, the Fed has kept the federal funds rate at 3.5%-3.75% since the last cut in December 2025.

Competing views on the path of rates

Some economists argue the Fed could still cut rates if the labor market deteriorates. Others contend that reduced consumer spending in response to higher oil prices may erode households’ purchasing power, making it harder for firms to raise prices.