The consumer price index rose at a seasonally adjusted 0.6% for the month, putting the one-year pace at 3.8%, the Bureau of Labor Statistics reported Tuesday. The monthly rate was as forecast, but the annual rate was 0.1 percentage point above the Dow Jones consensus.

Excluding food and energy, the core CPI increased 0.4% and 2.8%, respectively, keeping inflation well above the Federal Reserve’s 2% goal as the monthly rate was the highest since January 2025. Fed officials consider core a better indicator of longer-term inflation trends.

The annual headline inflation rate was the highest since May 2023 and was up half a percentage point from March. Core inflation rose 0.2 percentage point annually.

Energy prices, which jumped 3.8%, accounted for more than 40% of the headline gain, while food prices also climbed 0.5%. For energy, that put the 12-month gain at 17.9%, while food was up 3.2%. The gasoline index increased 28.4% annually. Food at home prices increased 0.7%, the biggest monthly gain since August 2022.

Though energy and in particular gasoline has been much of the headline story, inflation pressures also came from a variety of other areas.

Shelter costs rose 0.6% after easing in prior months, indicating that inflation is a problem beyond the Iran war impacts. The tariff-sensitive apparel category increased 0.6% and airline fares accelerated 2.8%, putting the 12-month gain at 20.7%. Tariffs also seemed to hit other areas, with household furnishings and operations up 0.7%.

New vehicle prices fell 0.2% while the index for used cars and trucks was flat. Medical care costs decreased 0.1% and hospital services were down 0.3%. Health insurance also declined 0.4%, while motor vehicle insurance increased 0.1%.

The report also contained bad news for workers, as real average hourly wages slipped 0.5% for the month and fell 0.3% annually.

Stock market futures were negative following the report while Treasury yields were higher. Traders also raised the odds for a Fed rate hike by the end of the year to about 30%, according to CME Group data.

“Inflation is the key drag on the U.S. economy now,” said Heather Long, chief economist at Navy Federal Credit Union. “This is hurting Americans. There is a real financial squeeze underway. For the first time in three years, inflation is eating up all wage gains. This is a setback for middle-class and lower-income households and they know it.”

The latest inflation news comes at a crossroads for the Fed, which has kept its benchmark interest rate steady all year amid misgivings among policymakers both on where the central bank should be heading and how it should communicate its intentions.

In late April, the Fed voted again to hold but saw four dissents, the highest since 1992. Fed Governor Stephen Miran again voted no in favor of a quarter percentage point cut, while three regional presidents objected to language that markets read as an indicator that the next move will be a cut.

At the same time, incoming Chair Kevin Warsh has advocated for lower rates, a position that will be difficult to square with the burst of inflation since the fighting in Iran began. Energy prices have surged, with oil running above $100 a barrel and gasoline averaging $4.50 a gallon nationally, according to AAA.

“Given that inflation is heading in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to lower interest rates any time soon and it’s possible that we may start pricing in rate hikes for next year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Amid the higher rates, consumer sentiment has hit all-time lows though the stock market has been resilient. Major averages are just off their all-time highs as corporate America is nearing the end of a strong earnings season.

Consumer spending also has held up, though it’s largely been pushed by higher-income earners and the general trend higher in prices. The Atlanta Fed’s GDPNow tracker of incoming economic data is pointing toward economic growth of 3.7% in the second quarter, though on a limited set of data for the period.

“The good news is that the economy looks resilient to this price shock so far,” said James McCann, senior economist for investment strategy at Edward Jones. “Many consumers have benefited from tax refunds this year, hiring has picked up from near stagnant rates in 2025 and businesses are generating robust profit growth. There are limits to these buffers, but we expect, they should provide some reassurance that the economy can weather this shock.”

The reason is inflation, which describes the gradual rise in prices and slow decline in purchasing power of your money over time. Here’s how to understand inflation, plus a look at the steps that you can take to protect the value of your money.

How Does Inflation Work?

Inflation occurs when prices rise across the economy, decreasing the purchasing power of your money. In 1980, for example, a movie ticket cost on average $2.89. By 2025, the average price of a movie ticket rose to $16.08.

Don’t think of inflation in terms of higher prices for just one item or service, however. Inflation refers to the broad increase in prices across a sector or an industry, like the automotive or energy business—and ultimately a country’s entire economy.

The chief measures of U.S. inflation are the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Personal Consumption Expenditures Price Index (PCE), all of which use varying measures to track the change in prices consumers pay and producers receive in industries across the whole American economy.

Though it can be frustrating to think about your dollars losing value, most economists consider a small amount of inflation a sign of a healthy economy. A moderate inflation rate encourages you to spend or invest your money today, rather than stuff it under your mattress and watch its value diminish.

Inflation can become a destructive force in an economy if it is allowed to get out of hand and rise dramatically.

What Is Deflation?

When prices decline across a sector of the economy or throughout the entire economy, it’s called deflation. While it might seem nice that you can buy more for less tomorrow, economists warn that deflation can be even more dangerous for an economy than unchecked inflation.

When deflation takes hold, consumers delay purchases in the present as they wait for prices to decline even further in the future. If left unchecked, deflation can diminish or freeze economic growth, which in turn decimates wages and paralyzes an economy.

Extreme Inflation: Hyperinflation & Stagflation

When inflation isn’t kept in check, it’s commonly known as hyperinflation or stagflation. These terms describe out-of-control inflation that cripples consumers’ purchasing power and economies.

What Is Hyperinflation?

Hyperinflation occurs when inflation rises rapidly and the value of the currency of the country tumbles rapidly.

Economists define hyperinflation as taking place when prices rise by at least 50% each month. Though rare, past instances of hyperinflation have taken place during civil unrest, during wartime or when regimes have been taken over, rendering currency effectively worthless.

Perhaps the best-known example of hyperinflation took place in Weimar Germany, in the early 1920s.

What Is Stagflation?

Stagflation occurs when inflation remains high, but a country’s economy is stagnant, and its unemployment is rising. Usually, when unemployment increases, consumer demand decreases as people watch their spending more closely. This decrease in demand lowers prices, helping to recalibrate your purchasing power.

When stagflation happens, however, prices remain high even as consumer spending decreases, making it increasingly expensive to buy the same goods.

We don’t have to look abroad to find examples, as the U.S. experienced stagflation in the mid to late 1970s. High prices from the Organization of the Petroleum Exporting Countries (OPEC) oil embargoes in the 1970s drove inflation higher as a recession lowered gross domestic product (GDP) and increased unemployment.

What Causes Inflation?

The gradually rising prices associated with inflation can be caused in two main ways: demand-pull inflation and cost-push inflation. Both come back to the fundamental economic principles of supply and demand.

Demand-Pull Inflation

Demand-pull inflation is when demand for goods or services increases, but supply remains the same, pulling up prices.

In a healthy economy, people and companies increasingly make more money. This growing purchasing power allows consumers to buy more than they could before. In turn, this increases competition for existing goods and raises prices while companies attempt to ramp up production. On a smaller scale, demand-pull inflation can be caused by sudden popularity of certain products.

For example, at the start of the Covid-19 pandemic, the increase in demand for indoor, socially distant activities combined with the highly anticipated release of Animal Crossing: New Horizons saw the price of the Nintendo Switch gaming system almost double on some secondary markets. Because Nintendo could not increase production, due to factory production halts from Covid-19, Nintendo could not raise its supply to meet rising consumer demand, resulting in increasingly higher prices.

Cost-Push Inflation

Cost-push inflation is when the supply of goods or services is limited in some way. But demand remains the same, pushing up prices. Usually, some sort of external event, like a natural disaster, hinders companies’ abilities to produce enough of certain goods to keep up with consumer demand. This allows them to raise prices, resulting in inflation.

For example, think about oil prices. You—and pretty much everyone else—need a certain amount of gas to fuel your car. When international treaties or disasters drastically reduce the oil supply, gas prices rise because demand remains relatively stable even as supply shrinks.

How Is Inflation Measured?

The U.S. inflation rate is measured by the CPI, PPI and PCE indexes. Because no single index captures the full range of price changes in the U.S. economy, economists must consider these multiple indexes to get a comprehensive picture of the rate of inflation.

The basic formula to calculate the inflation rate is as follows:

Consumer Price Index (CPI)

The U.S. Bureau of Labor Statistics calculates monthly based on the changes in prices consumers pay for goods and services. The CPI uses a “basket of goods” approach, meaning it tracks changes in the costs of eight major categories people spend money on: food and beverages, housing, apparel, transportation, education and communication, recreation, medical care, and other goods and services.

Many consider CPI as the benchmark for measuring inflation in the U.S.

CPI is especially important because it is used to calculate cost of living increases for Social Security payments and for many companies’ annual raises. It is also used to adjust the rates on some inflation-protected securities, like Treasury Inflation-Protected Securities (TIPS).

Producer Price Index (PPI)

Also published by the Bureau of Labor Statistics, PPI tracks the changes in prices that companies receive for the goods and services they sell each month. Costs can rise when producers face an increase in tariffs, higher oil and gas prices to transport their items, or other issues, such as the impact of a long-lasting pandemic or environmental changes, like a rise in hurricanes, wildfires or flooding.

The PPI plays an important role in business contracts. Businesses that enter long-term contracts with suppliers frequently use the PPI to automatically adjust the rate they pay for raw goods and services over time. Otherwise, suppliers would lock themselves into yearslong contracts at rates that might lose their purchasing power over the long term.

Personal Consumption Expenditures Price Index (PCE)

Published by the Bureau of Economic Analysis (BEA), PCE tracks how much consumers pay for goods and services in the economy.

PCE considers a broader range of consumer expenditures than CPI, like healthcare spending. It also updates the basket of goods it uses for calculations based on what consumers are spending money on each month, rather than limiting data to a fixed set of goods.

PCE is an especially important measure because it’s the Federal Reserve’s preferred measure of inflation when making monetary decisions, such as rate hikes or cuts.

Inflation and the Fed

The Federal Reserve is the central bank of the U.S., and the Fed—like central banks around the world—is tasked with maintaining a stable rate of inflation.

The Federal Open Markets Committee (FOMC) has determined that an inflation rate around 2% is optimal for employment and price stability.

This level of inflation gives the FOMC scope to jump-start the economy during downturns by decreasing interest rates, which makes borrowing cheaper and helps boost consumption. Lower interest rates reduce costs for businesses and consumers to borrow money, stimulating the economy. Lower interest rates also mean individuals earn less on their savings, encouraging them to spend. But all this extra demand can push up inflation.

How Does Inflation Impact the Stock Market?

Some inflation can be a sign of a healthy, growing economy, but when inflation rises higher than expected or becomes unpredictable, it tends to hurt investors and businesses alike.

When inflation rises sharply, companies face higher costs for materials, labor and transportation. If they can’t raise prices to match those costs, their profit margins will shrink.

Inflation also tends to influence the Federal Reserve’s decisions. When prices rise too quickly, the Fed has been known to increase interest rates to preserve the economy. Higher rates make borrowing more expensive for businesses and consumers, which can slow growth.

However, not all industries react the same way. Energy, utilities and consumer staples, for instance, can often pass increased costs onto consumers to remain profitable. Meanwhile, growth stocks and tech companies may struggle.

What Investments Beat Inflation?

Even a moderate rate of inflation means that money held as cash or in low-APY bank accounts will lose purchasing power over time. You can beat inflation and boost your purchasing power by investing your money in certain assets.

To overcome inflation, “A good portfolio could include shorter-maturity bonds, a bit of TIPS, commodities and gold, and ideally a share of real assets that generate income, adjusting exposures as inflation expectations change, rather than thinking one static mix will work,” says Alex Tsepaev, chief strategy officer at B2Prime Group, a global financial services provider for professional and institutional clients.

Beat Inflation with Stocks

Investing in the stock market is one way to potentially beat inflation. While individual stock prices may fall and companies may go out of business, broader stock market indexes rise over the long run, beating inflation.

From 1937 to 2025, the S&P 500, which tracks the performance of 500 of the largest companies in the U.S., generated an average annual return of just over 12%, according to LSEG Datastream and Yardeni Research. This is a long-term average—in some years, the S&P 500 had lower or even negative returns.

Investing in individual stocks offers no guarantees, but a well-diversified investment in a broad market index fund can grow wealth over decades and beat inflation.

Beat Inflation with Bonds

Bonds on average offer lower returns than stocks, but they can also regularly beat inflation. Risk adverse investors or those approaching or in retirement may seek out the more consistent returns of investments in bonds and bond funds to beat inflation.

Treasury Inflation-Protected Security (TIPS)

Treasury Inflation-Protected Securities (TIPS) are a special class of U.S. Treasury bonds specifically designed to protect investors from inflation.

TIPS automatically adjust the value of your investment based on changes to CPI, meaning the value of your bond rises with inflation. TIPS pay interest over the five-, 10-, or 30-year life of the bond.

Can You Beat Inflation With Gold?

Many investors consider gold as the ultimate inflation hedge, although the debate over this proposition is far from settled.

The price of gold can fluctuate over time and is impacted by movements of global currencies. Monetary policy choices made by the Fed and other central banks, not to mention erratic supply and demand.

Investing in gold also comes with its own unique set of challenges. If you buy gold, you have to find a secure location or custodian to store it, which comes with costs of its own. If you sell gold after holding it for a year or more, it’s subject to higher long-term capital gains tax rates than stocks and bonds.

The US Federal Reserve kept interest rates unchanged on Wednesday, holding its benchmark policy rate in the 3.50 to 3.75 per cent range as it grapples with renewed inflation pressures driven by surging oil prices and geopolitical tensions.

The move was widely expected, but discussions around the decision reflected growing concern inside the Fed that inflation risks may not be fading as quickly as hoped.

“Developments in West Asia are contributing to a high level of uncertainty about the economic outlook,” the Fed said in a statement, adding that inflation is “elevated” in part due to the surge in energy prices.

The Fed added that while the unemployment rate has changed little in recent months, job gains remain low.

Fed policymakers are increasingly focused on the impact of surging oil prices driven by the Iran war. The continued closure of the strategic Strait of Hormuz has pushed Brent crude back above 110 dollars per barrel, compared with around 70 dollars before the escalation in February.

This has complicated the Fed’s inflation outlook, which is already under pressure.

Inflation in the US remains about one percentage point above the Fed’s 2 per cent target. The central bank also expects upcoming inflation data to show further upward pressure, adding to the challenge of bringing price growth under control.

Against this backdrop, the US economy continues to show resilience.

Job growth has remained surprisingly firm, and unemployment has eased to around 4.3 per cent. That resilience reduces pressure on the Fed to cut rates in the near term.

However, economists say the combination of sticky inflation and strong employment is pushing the central bank toward a more cautious stance.

Markets are now pricing in a prolonged period of higher interest rates, with traders seeing little chance of cuts before mid-next year.

The decision also comes at a politically sensitive moment for the US central bank, with Jerome Powell nearing the end of his term as Fed chair on May 15.

The University of Michigan’s final April sentiment index dropped to 49.8 this month from 53.3 in March. While that was slightly improved from the preliminary reading, it remained the lowest in data going back to 1978.

Consumers expect prices to rise at an annual rate of 4.7% over the next year, up from 3.8% in March, the data released on Friday showed. That was the biggest one-month increase since President Donald Trump announced sweeping tariffs last year.

They saw costs rising at an annual rate of 3.5% over the next five to 10 years, the highest since October.

Sentiment has tumbled in the wake of the Iran war, which has driven up fuel costs for inflation-weary Americans. So far, though, retail sales data out earlier this week indicated consumers continue to spend on a broad range of merchandise.

While the US and Iran have agreed to a temporary ceasefire, the absence of a permanent deal to end the war is keeping uncertainty elevated for consumers and weighing on the outlook.

“The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices,” Joanne Hsu, director of the survey, said in a statement. “In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers.”

Analysts have warned that gas prices, currently around $4 a gallon, could remain elevated for months even if a deal is reached. That could continue to weigh on sentiment.

Americans are enjoying bigger tax refunds, which alongside signs of front-loading of purchases, helps explain at least some of the improvement in retail activity. Still, spending risks softening in the coming months as higher energy costs add to pressure on household budgets.

Consumers expect gas prices to climb nearly 50 cents in the coming year, though expectations differed by political affiliation. Overall, nearly two-thirds of respondents expect fuel costs to be higher a year from now, the largest share since 2022.

The current conditions gauge declined in April to a four-month low, while the expectations index dropped to the lowest in nearly a year.

Consumers’ perceptions of their expected financial situation was the weakest since May of last year.

The survey period includes responses from March 24 to April 20.

Gold fell in choppy trade on Thursday as elevated oil prices fuelled fears of inflation and prolonged high interest rates, while investors looked for clarity on stalled peace talks between the U.S. and Iran.

Spot gold was down 0.7% at $4,705.09 per ounce, as of 0215 GMT. U.S. gold futures for June delivery fell 0.6% to $4,722.10.

Brent crude oil prices remained above $100 a barrel after larger-than-expected gasoline and distillate stock draws in the United States, and over a lack of progress on the peace talks. [O/R]

”The sight of Brent oil back at triple digits is keeping inflation worries at the forefront, and is putting gold on the back foot today,” said Tim Waterer, chief market analyst at KCM Trade.

Higher crude oil prices can stoke inflation by raising transportation and production costs, increasing the likelihood of higher interest rates.

While gold is considered an inflation hedge, high interest rates make yield-bearing assets more attractive, weighing on bullion’s appeal.

Iran seized two ships in the Strait of Hormuz on Wednesday, tightening its grip on the strategic waterway after U.S. President Donald Trump called off attacks with no sign of the peace talks restarting.

Trump maintained the U.S. Navy blockade of Iran’s trade by sea, and Iran’s ​parliament speaker and ​top negotiator Mohammad Baqer Qalibaf said a full ceasefire only made sense if it was lifted.

”Investors are worried that this ’ceasefire-plus-blockade’ status quo could drag on for months, turning a short-term spike into a long-term inflationary anchor, which would hurt gold from a yield perspective,” said Waterer.

Meanwhile, a Reuters poll of economists showed the U.S. Federal Reserve will likely wait at least six months before cutting interest rates this year as war-driven energy shocks reignite already-elevated inflation.

Traders now see a 23% chance of a 25-basis-point Fed rate cut in December, down from 28% a week ago. Before the war, there were expectations of two reductions for this year. [FEDWATCH]

Spot silver fell 1.4% to $76.64 per ounce, platinum lost 1.3% to $2,048.25, and palladium was down 1% at $1,529.25.

Economists are penciling in a 1 per cent 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 per cent from a month earlier, according to a Bloomberg survey ahead of the Bureau of labour Statistics report due Friday.

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 per cent for a third month in February, suggesting progress toward tamer inflation was stalling even before the conflict.

Combined with signs of stabilisation in the US labour market, stubborn price pressures along with new inflation risks stemming from war in the West Asia 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.”

—Anna Wong, Stuart Paul, Eliza Winger, Chris G. Collins, Alex Tanzi & Troy Durie.

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.

In Canada, the March labour 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 per cent.

Elsewhere, central banks from Poland to India and New Zealand may keep policy steady as they monitor events in the West Asia, while inflation gauges from China to Latin America will point to the impact on living costs.

Asia

Asia gets three rate decisions this week, with the focus falling on how authorities assess risks to prices and growth from the West Asia conflict.

The Reserve Bank of New Zealand is expected to hold its cash rate at 2.25 per cent on Wednesday for a second straight meeting after Governor Anna Breman said she won’t rush into raising the benchmark in response to the Iran war.

Pricing in the overnight swaps market shows traders see a roughly 58 per cent chance of an increase by the meeting in July, though economists see a longer hold.

On the same day, India’s Reserve Bank is forecast to keep its repurchase rate steady at 5.25 per cent, while on Friday, the Bank of Korea — in the final meeting of Governor Rhee Chang Yong’s tenure — is all but certain to keep settings unchanged as well.

Data highlights include inflation updates from the Philippines, Thailand and Taiwan. China’s key inflation gauges for March, due Friday, will likely reflect the impact of soaring energy costs.

Consumer inflation may accelerate again after picking up to the fastest pace in three years in February. Likewise, factory-gate deflation may narrow further after registering the slowest clip in more than a year in the previous month.

Japan releases wage data for February on Wednesday, with a focus on the inflation-adjusted gauge after it turned positive in January for the first time in more than a year.

Singapore releases retail sales figures for February on Monday, and New Zealand’s manufacturing PMI for March is due Friday.

Europe, West Asia, Africa

Multiple euro-region industrial reports will draw attention, although their focus on February — before war began in the West Asia — may limit their utility for investors.

German factory orders on Wednesday, followed by production and export numbers on Thursday, will offer a glimpse of manufacturing in Europe’s biggest economy at a time when the flow of defense-focused stimulus is building.

Those two days will also feature French export numbers and Spanish production data, followed by Italian factory statistics on Friday.

Appearances by euro-zone central bankers and Bank of England policymakers will be sparse during a week shortened by the Easter holiday.

Inflation numbers from several economies will draw attention, highlighting how the energy squeeze in the Gulf is impacting consumers. Last week’s euro-zone reading showed the biggest jump since 2022.

Reporting from the Nordics are Sweden on Tuesday and Norway on Friday, both of which may have experienced accelerating price growth.

Hungary’s inflation on Wednesday is also seen quickening notably above 2 per cent, in a report arriving just days before the country’s highly anticipated election.

On Thursday, Egypt’s consumer-price growth is expected to show another uptick from the 13.4 per cent level in February, after energy costs soared and the pound fell to a record low.

Latin America

Central banks and March consumer price reports from some of the region’s big economies take center stage, offering a glimpse of the Iran war’s expected inflation shock.

The early consensus sees consumer price pressure rising in all four economies reporting in the coming week — Brazil, Chile, Colombia and Mexico.

Colombia watchers will be eager to pore over the minutes of BanRep’s latest meeting, at which where policymakers delivered a second straight 100 basis-point hike.

The split decision — four board members backed the hike, two voted for a 50-basis-point cut, and one wanted no change — pushed the key rate up to 11.25 per cent and prompted Finance Minister German Avila to walk out in protest.

Analysts surveyed by Bloomberg now see a terminal rate of 12 per cent for Colombia and don’t expect any easing until the third quarter of 2027.

Monetary policy meeting minutes are also on tap in Mexico. Banxico on March 26 delivered a quarter-point cut to put the key rate at 6.75 per cent while also revising up inflation expectations — raising some eyebrows, legitimate concerns about growth notwithstanding.

In Peru, central bankers at their monthly rate meeting will be sorely tested by March’s huge jump in consumer prices — the month-on-month reading of 2.38 per cent was the highest in the series dating to 1994 — driven in no small part by the Iran war’s oil shock.

Still, the early consensus sees the board, led by bank chief Julio Velarde, choosing to see where the Iran conflict and consumer price pressures stand by this time next month, rather than tighten here.

Inflation has been a thorn in the US economy’s side since 2021, and though price increases have cooled off dramatically in the past few years, the problem never really went away: Inflation still hasn’t returned to pre-pandemic levels, and Americans haven’t yet adjusted to higher prices. That’s why the cost of living has remained Issue No. 1 for voters in poll after poll.

This oil price shock almost certainly will not translate into the 9.1% four-decade high inflation that the United States painfully endured in 2022. But key differences between the situation today and four years ago could make this latest war-induced inflation spike very difficult to bear.

Layering

The US economy has been remarkably resilient despite everything thrown at it this decade — a pandemic, two wars, a historic inflation crisis, tariffs…. It’s tough to shake a $31 trillion titan. That’s why most economists agree the oil price shock from the Iran war probably won’t end in a recession.

But the economy doesn’t need to be in a recession to grow painful — just ask the millions of low- and middle-income Americans who have struggled to make ends meet over the past several years.

Unlike 2022, when savings accounts were still padded by government stimulus, an emergency pause on student loan debt repayments and other pandemic-related safety nets, in 2026, many Americans are borrowing money to get by — and they’re finding it harder and harder to keep up with those payments.

In February, Americans’ savings rate (savings as a percentage of after-tax income) was 4%, the latest Commerce Department data showed. In February 2020, that rate was 7.5%. And heading into the pandemic-era inflation burst, those piggy banks were plump (in part due to federal stimulus payments, refinances, and a sheer pullback of spending): The savings rate was 21.6% in March 2021, when inflation was starting to accelerate.

“Households do have less of a cushion now than they did two, three years ago,” Augustine Faucher, chief economist at PNC Financial Services Group, told CNN in an interview. “That means that this higher inflation is going to pinch more than it would have.”

Layer on top of rising prices: a frozen housing market, immigration restrictions that have exacerbated childcare and health care shortages, the elimination of key social services and historic tariffs … that’s a lot for folks to bear.

Now, add surging gas prices. That’s tipping some folks over the edge.

Paycheck gains

Despite how much Americans hate this economy, it’s had one saving grace: The average annual paycheck growth has exceeded the average rate of inflation for about three straight years.

Some economists — including Federal Reserve Chair Jerome Powell — argued that sentiment would eventually catch up to reality once Americans adjusted to higher prices, and paycheck gains padded their bank accounts.

That theory took a big blow to the noggin in March.

Annual wage growth shrank to just 3.5% on average last month, and annual inflation surged 3.3%. In one fell swoop, years of progress on inflation was set back, and Americans’ pay gains were practically eaten away.

“We’ve had a couple of years to try to heal and repair” from the pandemic-era inflationary burst, said Heather Long, chief economist with Navy Federal Credit Union. “To reverse that is painful.”

Surging gas prices have wiped out other economic benefits, too. For example, the average tax refund increased $351 this year, compared to last year. But the average US household is paying an additional $190 a month because of higher energy costs, according to Andy Lipow, president of Lipow Oil Associates. That will wipe out the tax refund benefit for the average American in just two months.

Duration

It’s alarming to see such a sharp increase in inflation in the first four weeks of the war. But what we saw in the March report is really just the beginning of an inflation rebound that could last for months.

Even in the most optimistic of scenarios, where the ceasefire agreement between the United States and Iran holds and the Strait of Hormuz reopens, consumer prices will remain high and inflation will almost certainly continue to gain for months.

That’s because oil shocks have both an immediate and a delayed effect on overall prices: Gas prices shoot higher right away, but other prices rise later as higher energy prices work their way through the economy.

For example, grocery prices fell in March, even as the cost of diesel surged. Eventually, higher diesel prices will send food prices higher because shipping companies will charge supermarkets more to deliver groceries. Food prices typically take three to six months — or even more than a year — after the initial shock to rise.

The sheer impact, however, is heavily dependent upon a highly unknown variable: The duration of the war and, particularly, the disruption to the Strait of Hormuz.

And those price hikes, no matter how small, can hit worse for some Americans than others, said Ken Foster, professor of agricultural economics at Purdue University.

“We have households in our country where the percentage of income spent on food is closer to 50%,” he said in an interview with CNN. “And when you add on fuel for heating your home or for transportation for you getting to work, you’re now talking about a sizable percentage of people’s income that’s really not adjustable.”

He added: “They haven’t been able to keep up in terms of their income, and this comes back to really put them in a financial bind.”

Americans are bracing for a fresh bout of price pressures in the near term, with inflation expectations rising sharply in March as geopolitical tensions drive up energy costs, according to the latest survey from the Federal Reserve Bank of New York.

The bank’s Survey of Consumer Expectations showed that one-year-ahead inflation expectations climbed to 3.4 per cent in March, up from 3 per cent in February, reversing recent easing and returning to levels last seen in December. The increase comes as households respond swiftly to higher fuel costs linked to ongoing conflict in West Asia.

A key driver of the jump was a surge in expected gasoline prices. Respondents now see fuel costs rising 9.4 per cent over the next year — a sharp increase of 5.3 percentage points and the highest reading since March 2022, when global energy markets were disrupted by the Russian invasion of Ukraine.

The latest spike mirrors that earlier energy shock, underscoring how sensitive near-term inflation expectations remain to geopolitical developments. The current crisis, triggered by military escalation involving the United States under Donald Trump and Israel, has once again rattled oil markets and fed into consumer sentiment.

Longer-term expectations relatively anchored

Despite the rise in short-term projections, longer-term inflation expectations remained comparatively stable — a trend likely to offer some reassurance to policymakers at the Federal Reserve.

Three-year-ahead inflation expectations edged up slightly to 3.1 per cent from 3 per cent, while the five-year outlook held steady at 3 per cent. However, all these readings remain above the Fed’s 2 per cent target, highlighting the continued challenge facing the central bank.

The Fed has struggled to bring inflation back to target, with recent progress threatened by both energy price volatility and lingering effects of higher import tariffs introduced during the Trump administration.

Fed flags temporary inflation pressures

Speaking earlier on Tuesday, New York Fed President John Williams said rising energy prices are likely to push headline inflation higher in the near term.

He noted that energy costs feed directly into overall inflation and projected that headline inflation could rise to around 2.75 per cent this year before easing. Even so, Williams maintained that monetary policy remains “well positioned”, suggesting no immediate urgency for further tightening.

The Fed’s benchmark interest rate currently stands in the 3.5 per cent to 3.75 per cent range, with policymakers signalling only one rate cut in 2026 at their most recent meeting.

Households grow cautious on finances, jobs

Beyond inflation, the survey pointed to a deterioration in consumer sentiment around personal finances. Respondents reported growing pessimism about both current and future financial conditions, reflecting the strain of rising living costs.

Views on the labour market were mixed. While some indicators remained resilient, expectations for the unemployment rate one year ahead rose to their highest level since April 2025, suggesting increasing concern about job security.

The interest rate for the most common U.S. home loan increased last week, reaching levels not seen since August, driven by rising oil prices and global uncertainties. The conflict involving the U.S. and Israel in Iran has intensified inflation concerns, pushing yields on Treasury bonds higher, which lenders use to benchmark mortgage rates.

The Mortgage Bankers Association reported that the contract rate on a 30-year, fixed-rate mortgage rose by 14 basis points to 6.57% in the week ending March 27. This increase is the largest weekly rise since the period following President Donald Trump’s announcement of unexpectedly high global tariffs. Overall, mortgage rates have risen by 48 basis points since the onset of the U.S.-Israel military action in late February.

Refinancing applications fell sharply by 17.3%, while applications for new home purchases declined by a smaller 2.6%. MBA chief economist Mike Fratantoni explained that while higher rates are a challenge, the abundance of homes on the market is partially easing the impact. He noted that the sudden rate hikes and broader economic uncertainty are affecting buyer confidence.

The yield on the 10-year U.S. Treasury note, a key indicator for mortgage rates, climbed as the Middle East conflict disrupted the Strait of Hormuz, a vital channel for about 20% of the world’s oil supply. Global benchmark crude oil prices surged to around USD 118 per barrel, over 50% higher than before the conflict. Despite some easing over the last two trading days due to hopes of a resolution, the 10-year Treasury yield remains elevated at 4.32%, up roughly 35 basis points for the month.

In its interim economic outlook, the Paris-based body cautioned that rising oil and gas prices triggered by disruptions to energy exports are likely to increase inflation across major economies and create “significant downside risks” to global expansion if the conflict intensifies.

The OECD expects US inflation to climb sharply from 2.6% in 2025, with countries such as China, South Korea and India also facing stronger price pressures due to the energy shock.

“The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth,” it said.

The report projected that higher living costs could weigh on US household spending and slow economic momentum. US growth is forecast to ease to 2% this year and further to 1.7% in 2027.

Globally, economic activity is also expected to moderate.
The OECD said world GDP growth could slow from 3.3% last year to 2.9% in 2026, before recovering slightly to 3% in 2027.

Earlier in the year, the global outlook had appeared more resilient, supported by strong investment in artificial intelligence and buoyant equity markets. However, the conflict that began with US and Israeli strikes on Iran in late February has pushed up energy prices and triggered ripple effects across commodities including metals and fertilisers.

The organisation noted that the resilience of the global economy is now being tested, particularly because of the strategic role of the Strait of Hormuz, which typically handles about one-quarter of global seaborne oil trade and one-fifth of liquefied natural gas shipments.

Supply-chain risks have also increased. Gulf countries account for 34% of global urea exports and roughly half of sulphur exports, while the Middle East produces more than one-third of global helium and two-thirds of bromine, both vital for industrial uses including semiconductor manufacturing.

“A prolonged period of disruption could also result in the emergence of significant energy shortages that would lower growth further,” the OECD warned.

The outlook indicates that earlier improvements in global growth projections have been reversed. Indicators at the start of the year had pointed to a 0.3 percentage point upward revision in global GDP forecasts, but the conflict has effectively erased that boost.

Inflation projections have also been revised higher. The OECD now expects headline inflation in the G20 to reach 4% in 2026, an increase of 1.2 percentage points compared with its December forecast, and 2.7% in the following year.

Growth prospects in Europe remain subdued, with the eurozone economy projected to expand by 0.8% this year before improving to 1.2% next year.

In the US, the organisation said weakening household demand could reduce growth momentum heading into 2026. Despite the inflation risks, it expects the Federal Reserve to keep interest rates unchanged, while the European Central Bank may implement a single rate increase.

Members of the US Federal Open Market Committee (FOMC) still anticipate rate cuts this year, although Federal Reserve chair Jay Powell has acknowledged that forecasts have become more uncertain because of geopolitical tensions.

The FOMC recently raised its projections slightly, saying headline and core personal consumption expenditures inflation may end the year at 2.7%, compared with earlier estimates of 2.4% and 2.5%. It also lifted its US growth forecast for this year to 2.4% from 2.3%, citing productivity gains.

The OECD’s inflation outlook is significantly higher than that of the Federal Reserve and many private forecasters, reflecting expectations of a more persistent energy price shock and continued effects from earlier US tariff increases. It also suggested that the US economy may already be operating under capacity constraints linked to lower immigration.

In a downside scenario where oil prices average around $135 per barrel in the second quarter, the OECD estimates global output could be 0.5 percentage points lower than its baseline forecast, while consumer prices could be nearly 1 percentage point higher.

While some countries are considering emergency support for households facing higher energy bills, the OECD said such measures should be “well-targeted” towards the most vulnerable households and financially viable firms.