Gas Prices Just Posted Their Biggest Monthly Jump Since 1967. The Fed Noticed.
March CPI came in at 0.9% monthly and 3.3% annual, driven almost entirely by a 21.2% spike in gasoline. But core inflation was cooler than expected, and the real question is what happens when the war premium fades and the Fed still can't cut.
The Numbers
The Bureau of Labor Statistics reported on April 10 that the Consumer Price Index rose 0.9% in March on a seasonally adjusted basis, the largest monthly increase in nearly four years, putting the annual rate at 3.3%. Energy prices surged 10.9% for the month, led by a 21.2% spike in gasoline: the single largest monthly gas price jump since the BLS began tracking it in 1967. Gasoline alone accounted for nearly three-quarters of the entire monthly CPI increase.
The more encouraging number was underneath the headline. Core CPI, stripping out food and energy, rose just 0.2% monthly and 2.6% year-over-year, both a tenth of a point below consensus. Shelter costs increased 0.3% (3.0% annually, tied for the lowest since August 2021). Food prices were flat. Medical care, personal care, and used car prices all declined. Eggs fell another 3.4%, now down 44.7% from their peak.
The University of Michigan Consumer Sentiment Index, also released April 10, dropped to a new all-time low, below anything recorded during the Great Recession or the COVID pandemic.
Why It Matters
Two inflations in one report: The March CPI is really two stories stapled together. The headline number (0.9%, 3.3% annual) is a war-driven energy shock that will reverse if the ceasefire holds and oil continues falling from its $110+ peak. The core number (0.2%, 2.6% annual) shows underlying price pressures are actually moderating. The Fed’s challenge is deciding which number to believe. If they focus on the headline, rate hikes are on the table. If they focus on core, they can hold steady and wait for energy to normalize. The FOMC minutes already showed members leaning hawkish, and this report gives both camps ammunition.
The second-order problem: Even if oil prices normalize quickly, the 40 days of $100+ crude have already fed into transportation costs, airline fares (+2.7% in March), apparel (+1.0%), and shipping rates across rail, road, and sea. These second-order effects arrive with a lag and persist after the initial shock fades. Kiplinger’s inflation forecast now projects headline CPI reaching 3.6% in April or May before moderating, with core inflation creeping toward 2.9% by mid-year because of tariff effects and rising healthcare costs. Rate cuts are effectively off the table for 2026.
Consumer sentiment says it all: The all-time low in the Michigan survey is not just about gas prices. It reflects a consumer who spent 2025 watching inflation finally cool, only to see it rip back up because of a war they didn’t ask for, with real wages declining 0.6% in a single month. The spending data has not cracked yet, but sentiment at these levels has historically preceded pullbacks in discretionary consumption within two to three quarters.
- April CPI (due May): If the ceasefire holds, energy should moderate. But if Hormuz remains restricted, gasoline could stay elevated and push April headline CPI even higher.
- Fed rhetoric: Multiple officials have publicly discussed rate hikes. The June FOMC meeting is the next decision point. Markets are pricing zero cuts for 2026.
- Islamabad talks: VP Vance leads U.S. delegation in Pakistan this weekend. Strategists see a 40% chance the ceasefire unravels by end of April. If it does, $100+ oil returns immediately.
- Core is cooperating: At 2.6% annually, core CPI is within striking distance of the Fed's target. Shelter inflation hit multi-year lows. If energy normalizes, the disinflation trend is intact.
- Best week since November: Despite Friday's selloff, the S&P 500 gained 3.6% for the week and the Nasdaq rose 4.7%. Markets are looking through the inflation print to the ceasefire.