The sudden increase in US gasoline prices felt by American consumers is set to be on full display in key inflation data due out this coming week.
Economists are penciling in a 1% increase in the consumer price index for March — the sharpest one-month advance since 2022 — after the Iran war pushed gas prices at the pump up by about $1 per gallon.
At the same time, the core CPI, excluding energy and food, probably rose 0.3% from a month earlier, according to a Bloomberg survey ahead of the Bureau of Labor Statistics report due Friday.
Gasoline-Derived US Inflation Surge in March | Higher prices at the pump seen fueling advance; core inflation more modest
Oil prices have been roiled by five weeks of conflict, climbing to almost $120 a barrel last month as key Middle East energy assets came under attack and Iran effectively closed the critical Strait of Hormuz, creating what the International Energy Agency called the biggest supply disruption in the history of the market.
OPEC+ warned on Sunday that damage to Middle East energy assets will have a prolonged impact on oil supply even after the Iran war ends, as it approved a symbolic increase in output quotas for next month.
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A day ahead of the CPI, the Federal Reserve's preferred gauge of inflation will offer a snapshot of pre-war price pressures. Economists see the so-called core personal consumption expenditures — PCE — price index, which excludes food and energy, having risen by 0.4% for a third month in February, suggesting progress toward tamer inflation was stalling even before the conflict.
Combined with signs of stabilization in the US labor market, stubborn price pressures along with new inflation risks stemming from war in the Middle East help explain why the Fed may struggle to lower interest rates this year.
What Bloomberg Economics Says:
“March's gangbuster payrolls print and lower unemployment rate certainly don't boost the case for the Fed to resume cutting rates anytime soon. Data this coming week also won't likely make the case for rate reductions.”
The mid-week release of minutes from the central bank's March policy meeting may shed light on officials' concerns about inflation or the potential economic impacts stemming from the Iran conflict and related disruptions to energy and other commodity flows.
In addition to the PCE price data, the Bureau of Economic Analysis' report will include figures on personal spending as well as incomes. Economists expect a modest increase in inflation-adjusted spending.
Other reports in the coming week include the Institute for Supply Management's March services activity index, due on Monday. And on Friday, the University of Michigan will issue its preliminary April consumer sentiment index.
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In Canada, the March labor force survey will offer a first look at how surging energy costs may be filtering through to job growth and unemployment. Economists expect the jobless rate to tick up to 6.8%.
Elsewhere, central banks from Poland to India and New Zealand may keep policy steady as they monitor events in the Middle East, while inflation gauges from China to Latin America will point to the impact on living costs.
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