The fight against inflation may face a major setback: the Iran war.

The Consumer Price Index this week expects prices to rise at a 3.3% annual pace in March, which is an average of six separate forecasts reviewed by CBS News. This would be the highest inflation rate since May 2024 and an increase of about 1 percentage point from February.

The CPI report will be released on Friday at 8:30 am ET.

“The impact of the war on energy prices will push headline CPI inflation above 3% in March and above 4% by April,” Oxford Economics forecast in a report Wednesday.

According to Pantheon Economics, inflation pressures are rising due to higher energy prices linked to the Iran war, with the US experiencing the largest one-month jump in fuel costs since at least 1957.

The impact of the conflict on a wide range of goods and services is likely to last for months, and experts said a two-week ceasefire between the US and Iran is unlikely to immediately ease global energy shortages.

Higher fuel prices may increase the cost of other goods, including food, due to increased transportation and production costs. Energy prices rise sharply during oil supply disruptions but fall more slowly after the crisis ends – a phenomenon economists call the “rocket and wings” principle.

early years cool-down

“We’ll be paying the price for most of the year,” Mark Zandi, chief economist at financial research firm Moody’s Analytics, told CBS News. “We should see a slight increase in the price of airline tickets. Grocery prices will probably be a little higher. Obviously, it’s used to get food from the port or farm to the store shelf.”

The expected increase in CPI comes after inflation subsides to a 2.4% annual rate in the first two months of 2026 – still above the Federal Reserve’s 2% target, but well below the 40-year high of 9.1% recorded in June 2022.

Another key remedy on Thursday: the inflation rate indicates that everyday costs rose in February even before the Iran War, rising 0.4% from January. The personal consumption expenditure price index also showed that consumer spending rose 0.5% in February compared with the previous month but declined 0.1% when adjusted for inflation, according to Greg Daco, chief economist at EY-Parthenon.

“Make no mistake, houses are quickly running on smoke,” Deco wrote in a report.

Even before gas prices rose due to the Iran war, many Americans were still recovering from the pandemic-era inflation surge and continued to cite affordability as a major concern. The Trump administration said that “the Iran war will cause gas prices to return to the multi-year lows that American drivers enjoyed before these short-term disruptions.”

The US oil benchmark fell nearly 15% to $96.41 a barrel on Tuesday, after the US announced a ceasefire with Iran. However, it is 43% higher than just before the war, signalling to consumers that they cannot expect much relief in the next few weeks.

Consumers have already paid an extra fuel cost of $8.4 billion. The Democratic minority of the Joint Economic Committee estimates that in the month after the Iran war began, consumers faced significant changes. There may also be higher prices for other goods and services, from airline fees to higher mortgage rates. burden household finances.

Federal Reserve Bank of Chicago President Austin Goolsbee said rising prices could put pressure on household budgets and derail consumer spending if Americans hold back on discretionary purchasing. told CBS News earlier this month. Since consumer spending accounts for about 70 cents of every $1 of GDP, the impact on household finances could weigh on the economy.

“It connects.”

Even before the Iran war, some consumers were showing signs of financial distress, said Elizabeth Pancotti, managing director of policy and advocacy at the Groundwork. Collaborative, a left-wing think tank. Difficulty Withdrawals from 401(k)s reached a record. Last year, while the loan crime rate increased, higher-income households also increased in 2025.

“We started to see an increase in loan defaults. We started to see a decline in savings rates. We saw wage growth really stagnate,” Panciotti told CBS News. “If you pile on that, I think you go from flashing warning signs to major flashing alarm bells.”

Businesses are also feeling the impact of higher energy prices as well as disruptions to other key supplies shipped through the Strait of Hormuz. While approximately 20% of the global energy supply travels via vital waterways, other commodities, including helium, aluminium and fertilisers, also pass through the strait.

“Everything going in and out of the ranch comes on freight, and so when freight costs go up, shipping cattle goes up, and shipping feed goes up,” said Andrew Coppin, CEO of RanchBot, a Fort Worth, Texas-based company that sells water-monitoring technology to cattlemen. “And now you have a lack of availability of fertiliser, and the cost of fertiliser is increasing.”

Coppin said the average cattleman travels about 1,000 miles per week to check on his cattle. “It goes up, and at a time when they didn’t need it,” he said, adding that he expects the price of beef to rise this year as cattlemen face higher costs.

What is the condition of interest rates?

Consumers and businesses won’t be getting relief from borrowing costs any time soon. The Federal Reserve must grapple with high inflation as well as the labour market’s monthly job loss benefits over the last year.

In March, the Fed considered an interest rate cut to 2026, but expectations of higher inflation this year have prompted many economists to cut their forecasts.

“The Federal Reserve is holding off for the long haul until the fog of war clears and they can assess the full impact on the U.S. economy,” Heather Long, chief economist at Navy Federal Credit Union, said in an email.

Minutes released on Wednesday from the Fed’s March 17-18 meeting indicate that borrowing costs remain stable. They also suggest that some policymakers on the central bank’s 19-member interest rate setting panel believe it may be necessary to consider a rate hike in the future.

If there is a positive for inflation, it is that the impact of the Trump administration’s tariffs has diminished, with the effective tariff rate now sitting at around 8%. That’s down from a high of 21% in April 2025, when the president first announced his sweeping tariffs, according to the Yale Budget Lab.

The impact of high import costs is now diminishing, Bernard Yaros. The chief US economist at Oxford Economics spoke to CBS News. “Most of the tariffs have been pass-through.”