U.S. consumer prices rose more than expected in March, with the Consumer Price Index advancing 0.9% on a seasonally adjusted monthly basis and 3.3% year-over-year — up from 2.4% in February and the highest annual reading since October 2024. The acceleration was overwhelmingly driven by a 10.9% surge in energy costs as the Iran conflict sent gasoline prices to $3.88 per gallon from $2.93 in early February.
Core CPI — stripping out food and energy — rose a more moderate 0.3% for the month and 3.1% annually, suggesting the underlying inflationary impulse remains somewhat contained. Services inflation rose 0.2% for the month and 3% annually.
Shelter Costs Continue to Cool
One bright spot was shelter inflation rising 0.3% monthly and 3% annually — tied for its lowest level since August 2021. The long-awaited cooldown in rent and owners equivalent rent is providing important counterweight to the energy surge.
Food-at-home prices rose 0.4% for the month, with elevated transportation costs filtering through supply chains to grocery shelves. Airfares surged 3.1% monthly as carriers passed through jet fuel costs.
Market Reprices Rate Cut Expectations
Fed funds futures moved to price a 73% chance of no rate cuts in 2026, up from 60% before the report. The March FOMC minutes showed that "many participants judged that rate cuts would be appropriate if inflation declines in line with expectations" — a condition this report makes harder to satisfy.
Economists at Deutsche Bank warned that oil above $90 sustained through Q2 could push the year-end CPI print to 4%, forcing the Fed into a choice between accepting above-target inflation or raising rates into an already-slowing economy.