U.S. inflation rose to its highest level in nearly two years in March, driven by a war-related jump in gas prices and rising energy costs that are squeezing household budgets, while consumer sentiment fell to a record low and inflation fears increased amid the Iran war. The Bureau of Labor Statistics reported that the all-items consumer price index rose 0.9% in March, pushing the 12-month inflation rate to 3.3%. CNN said the March CPI report showed a war-driven jump in gas prices helped push U.S. inflation to 3.3% last month.
Consumer Confidence Plummets
The University of Michigan's headline index of consumer sentiment tumbled to 47.6 in April, down 10.7% from the March survey and its lowest on record. Current conditions and expectations indexes also posted double-digit monthly declines. The survey's director, Joanne Hsu, said, "Survey comments show that many consumers blame the Iran conflict for unfavorable changes to the economy." She also said most of the interviews were completed before the April 7 ceasefire and that the survey primarily reflects conditions from March. Hsu 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."
The drop in sentiment coincided with a sharp rise in inflation expectations. Respondents in the University of Michigan survey saw prices up 4.8% in a year from now, a full percentage point increase from the March reading and the highest since August 2025. CNBC said the one-year outlook in April 2025 was 6.5% following President Donald Trump's "liberation day" tariff announcement. The survey also showed five-year inflation expectations rising to 3.4%, up 0.2 percentage point from the prior month and a percentage point below the level of a year ago.
Energy Costs Drive Price Increases
CNBC said the survey release came shortly after the Bureau of Labor Statistics report and that BLS officials said most of the increase in the headline number came from the surge in energy prices, with food inflation little changed. The Financial Times said U.S. inflation rose to its highest level in about two years in March, driven by a historic surge in petrol prices linked to the Iran-related conflict. Taken together, the reports said gas prices and energy costs were key drivers of the higher inflation readings and the related economic anxiety.
The war-related energy shock represents a burden on working families who must absorb higher costs for transportation and heating, with limited ability to adjust household budgets. The record-low consumer sentiment reflects the economic stress that geopolitical instability places on ordinary Americans, particularly those with less financial cushion to weather sudden price increases. The surge in inflation expectations suggests households are bracing for sustained economic pressure, even as officials hope for moderation following the ceasefire.
Why This Matters:
The war-driven inflation surge demonstrates how geopolitical conflicts translate directly into economic hardship for American families, who face higher costs at the pump and reduced purchasing power for essential goods and services. The record-low consumer sentiment and rising inflation expectations signal that households, particularly those with lower and middle incomes who spend a larger share of their budgets on energy and transportation, are experiencing acute economic anxiety. With five-year inflation expectations rising to 3.4%, the data suggests Americans are losing confidence in economic stability and fearing prolonged pressure on household finances. The episode underscores the vulnerability of working families to global supply disruptions and the need for policy interventions that can cushion consumers from volatile energy markets and provide economic security during international crises. As officials await evidence that supply disruptions have ended and prices have moderated, millions of households continue to navigate the immediate burden of elevated costs with limited relief in sight.