Consumer prices surged to a nearly two-year high in March, driven by a spike in energy costs following the onset of the Iran war. This is the first CPI report to reflect the impact of the war, with inflation rising nearly a full percentage point from February. National gasoline average prices in March soared above $4 for the first time since August 2022, accounting for nearly three-quarters of the monthly gain in inflation and marking the largest monthly increase in the gasoline index since government began tracking in 1967. As the ceasefire remains tenuous, energy prices are expected to remain elevated for months, continuing to put upward pressure on inflation and complicating the Fed’s path toward its 2% target.
On a non-seasonally adjusted basis, the Consumer Price Index (CPI) rose by 3.3% in March from a year ago, following a 2.4% increase last month, according to the Bureau of Labor Statistics (BLS) latest report. This was the largest annual increase since May 2024. The “core” CPI, excluding the volatile food and energy components, increased by 2.6% over the past twelve months, following a 2.5% increase in February. The housing shelter index, which makes up a large portion of “core” CPI, rose 3.0% over the year, holding steady over the last two months. Meanwhile, the component index of food rose by 2.7%, and the energy component index increased by 12.5%, the largest annual increase since November 2022.
On a monthly basis, the CPI rose by 0.9% in March (seasonally adjusted), and the “core” CPI increased by 0.2%.
The price index for a broad set of energy sources rose by 10.9% in March, the largest monthly increase since September 2005, with increases in fuel oil (+30.7%), gasoline (+21.2%), and electricity (+0.8%), partially offset by a decline in natural gas (-0.9%). Fuel oil posted its largest monthly increase since February 2000. Meanwhile, the food at home index fell by 0.2%, while the food away from home index increased by 0.2% in March.
Outside of energy, the index for shelter was the largest contributor to the overall monthly increase in the all items index. Other top contributors that rose in March included indexes for airline fares (+2.7%), apparel (+1.0%), household furnishings and operations (+0.2%), education (+0.3%), and new vehicles (+0.1%). Meanwhile, the index for medical care (-0.2%), personal care (-0.5%) and used cars and trucks (-0.4%) were among the few major indexes that decreased over the month.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.3% in March. The index for owners’ equivalent rent (OER) rose by 0.3%, while the index for rent of primary residence (RPR) increased by 0.2% over the month.
NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than core inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than core inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). In March, the Real Rent Index remained unchanged.
