Dive Brief:
- Inflation in March jumped more than anytime since 2022 while a war-induced surge in gasoline prices pounded a measure of consumer sentiment this month to the lowest level since the start of data collection in 1952.
- The Consumer Price Index rose 0.9% last month, or 3.3% on an annual basis, with a 21.2% leap in an index for gasoline fueling nearly 75% of the increase, the Bureau of Labor Statistics said Friday. Consumer sentiment plunged 11% in April, with assessments of personal finances also falling 11% because of soaring prices and falling asset values, the University of Michigan found in a survey.
- “Many consumers blame the Iran conflict for unfavorable changes to the economy,” Joanne Hsu, the university’s surveys of consumers director, said in a statement. Expectations for inflation in 12 months rose to 4.8% from 3.8% in February, she said.
Dive Insight:
Concern about inflationary harm from the Iran war flared across all demographic groups — by age, income and political affiliation, pushing down the index of consumer sentiment this month to 47.6 from 53.3 in March, Hsu said.
“Americans are upset about the war in Iran and they are showing it,” Navy Federal Credit Union Senior Economist Heather Long said, adding that consumers “have been clear that their top concern is affordability.”
“Paying $50 more a month in gas is a real tax on American households, especially middle- and lower-income households,” Long said.
Consumers grew gloomier about long-term price pressures, with expectations for inflation in five to 10 years rising to 3.4% this month from 3.2%, Hsu said.
So far higher energy prices show little sign of bleeding into the broader economy. The CPI excluding volatile food and energy prices increased just 0.2% in March, or 2.6% over 12 months after a 2.5% annual gain in February, the BLS said.
“Economic expectations will likely improve after consumers gain confidence that the supply disruptions stemming from the Iran conflict have ended and gas prices have moderated,” Hsu said. All but 2% of the survey interviews were conducted before the U.S. and Iran on April 7 agreed to a two-week cease fire, she said.
An extended limit on shipments through the Strait of Hormuz would spur inflation across the economy, according to economists.
“The disruption of the strait is a multi-commodity supply chain shock, involving fertilizers (urea, ammonia, potash, phosphates), petrochemicals (methanol, plastics, feedstocks), industrial metals (aluminum), energy‑transition minerals (graphite, sulfur) and specialty gases (helium),” Ben Emons, founder of FedWatch Advisors, said in a Substack post.
“Combined, these commodities account for zero percent of the CPI’s direct weight, but their effective weight, which reflects their indirect impact through food, housing, medical care and goods, is more than 20%,” he said.
“This is where the affordability crash hits home especially hard because food, housing and medical care account for more than 75% (!) of household budgets,” Emons wrote.
An index for energy prices surged 10.9% last month in the highest increase since 2005, the BLS said. The fuel oil index rocketed 30.7% during March, the biggest increase in 26 years.
Higher fuel prices pushed up transportation services costs last month by 0.6%, or 4.1% on an annual basis, after just a 0.2% gain in February, the BLS said.
United, Delta and other airlines in recent weeks have announced higher fees or plans to raise prices.
