US wholesale prices surged 4% last month after the war in Iran sent energy prices flying

WASHINGTON (AP) — U.S. wholesale prices surged last month as the Iran war drove up the cost of energy.

The Labor Department reported Tuesday that its producer price index — which measures inflation before it hits consumers — rose 0.5% from February and 4% from March 2025. The year-over-year gains was the biggest in more than three years. Energy prices surged 8.5% from February.

Excluding volatile food and energy prices, so-called core producer prices rose a modest 0.1% from February and 3.8% from a year earlier. The gains in wholesale prices were smaller than economists had forecast.

The surge in prices complicates the work of the inflation fighters at the Federal Reserve, who have faced intense pressure from President Donald Trump to lower their benchmark interest rate. But some Fed policymakers are inclined to raise rates instead, as higher energy costs increase the inflation threat.

Food prices, which will most certainly be front and center in next year's midterm elections, fell by 0.3% in March after surging by 2.4% in the previous month.

Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably measures of health care and financial services, flow into the Fed’s preferred inflation gauge — the personal consumption expenditures, or PCE, price index.

The most recent peek at inflation in the U.S. validates a recent shift by the U.S. Federal Reserve to intensify its focus on rising costs, wrote Carl Weinberg, the chief economist at High Frequency Economics.

“The decline in food prices is overdue, and welcome news for everyone,” Weinberg said Tuesday. “Food price increases are at the core of political arguments over affordability.”

The Labor Department reported last week that soaring gasoline prices pushed consumer prices up 3.3% last month from a year earlier, the biggest year-over-year increase since May 2024. Compared to February, March consumer prices jumped 0.9%, biggest gain in nearly four years.

The war in Iran and soaring energy prices will lead to an annual decline in oil demand for the first time since the pandemic, when billions of people were trying to live in isolation, according to a forecast Tuesday by the International Energy Agency.

The agency, formed after the 1974 oil crisis, said that oil demand is expected to decrease by an average of 80,000 barrels a day this year, a sharp revision from the increase of 850,000 barrels a day that it had forecast before the war began.

The drop-off in March was particularly severe because of attacks on energy infrastructure and the shutdown of the Strait of Hormuz, according to the IEA, which expects a decline in demand of 1.5 million barrels in the current quarter.

Treasury Secretary Scott Bessent told reporters Tuesday that “a small bit of economic pain for a few weeks is worth taking off the incalculable tail risk of the either a nuclear Iran or a nuclear Iran that uses that weapon.”

“So the conflict will end, prices will come down, and then headline inflation will come down, and with that, gasoline prices will come down," Bessent said. "We’ve seen them edging back down in the past 10 days.”

The average price for a gallon of regular gasoline in the U.S. has declined about 3 cents in that time span but it remains well above $4 per gallon, and costs about 30% more per gallon than it did at this time last year.

And there is no definitive end date for the conflict. Washington enacted its blockade of Iranian ports this week while Tehran threatened to strike targets across the region. Diplomats on Tuesday continued attempts to arrange a new round of peace talks between the United States and Iran.

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