The US economy absorbed its sharpest inflationary jolt in nearly four years in March, as the Iran conflict triggered a record surge in gasoline prices that quickly fed into headline CPI readings. The consumer price index rose 0.9 percent from February, the largest monthly gain since 2022, lifting the year-over-year pace to 3.3 percent. Nearly three-quarters of the monthly advance stemmed directly from energy costs, underscoring how geopolitical shocks can still dominate inflation dynamics even amid otherwise steady domestic activity. 

Exhibit 1 places this spike in historical context. The chart shows headline CPI (NSA, YoY) climbing from subdued levels in late 2025 to a clear 2026 upturn, while core CPI (SA, YoY) has held relatively steady near 2 percent. The divergence highlights that the acceleration remains concentrated in volatile energy components rather than broad-based price pressures across goods and services.

Exhibit 2 drills into the category detail and confirm the energy-led story. The 12-month percentage change for energy (cyan line) vaulted sharply higher in early 2026, peaking near 15 percent in March, while the broader “all items less food and energy” measure (red line) stayed contained around 2–3 percent. Food prices edged modestly higher, shelter costs rose a tame 0.3 percent, and most services categories outside energy remained subdued. Apparel, new vehicles, and medical care services showed little momentum, reinforcing that underlying inflation pressures have not yet broadened. 

The energy shock has already eroded consumer confidence. The University of Michigan sentiment index plunged to a record low in early April, with one-year inflation expectations jumping to a full percentage point. Real average hourly earnings grew just 0.3 percent year-over-year, the weakest pace since 2023, as higher pump prices squeezed disposable incomes. Lower-income households face the heaviest burden, while businesses signal caution on hiring and investment amid uncertainty over future oil flows through the Strait of Hormuz.