An inflation report to be released on Friday will provide the first look atprice increasesin the wake of an oil shock triggered by the U.S.-Israeliwarwith Iran.
The federal data from the Bureau of Labor Statistics (BLS) -- which details consumer prices in March -- is expected to show a surge of inflation driven in large part by costs for auto gasoline, airfares and other products impacted by theoil shortage.
Economists expect overall prices to have climbed 3.3% in March compared to a year earlier, which would mark a dramatic rise from a year-over-year inflation rate of 2.4% in the prior month. The anticipated reading would amount to the highest annual inflation rate in two years.
"The impact of the largest energy supply shock since the 1970s will certainly be on full display," Deutsche Bank Research said in a preview of the inflation report shared with ABC News.
Will the US-Iran ceasefire bring down gas prices?
The BLS collected price data over the entire month of March. The inflation report, in turn, will reflect prices for 31 of the first 32 days of war, excluding the outbreak of hostilities on Feb. 28. The ceasefire announced on Tuesday came after 40 days of fighting.
A rapid acceleration of price increases could complicateinterest ratepolicy at the Federal Reserve, which may be reluctant to lower borrowing costs as inflation climbs.
The Middle East conflict prompted Iran's effective closure of theStrait of Hormuz, a critical waterway that facilitates the transport of about one-fifth of global supply of oil and natural gas.
That energy shortage sent oil and gasoline prices surging worldwide. Gasoline prices in the U.S. stood at $4.16 on average per gallon as of Thursday, marking a leap of $1.18 since the start of the war,AAAdata showed.
As part of a two-week U.S.-Iran ceasefire announced on Tuesday, Iran says it will allow tankers passage through the Strait of Hormuz as long as they coordinate with the nation's military.
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The resumption of tanker traffic remains uncertain, however. Tanker traffic was suspended on Wednesday after Israeli attacks on Lebanon, Iran's semi-official Fars News Agency reported.
Crude prices fell after the ceasefire announcement but remained highly elevated. U.S. oil prices topped $97 a barrel as of Thursday, standing nearly 50% higher than their pre-war level.
A surge in consumer prices could pose difficulty for the Fed as it weathers a slowdown of economic performance over recent months.
If the Fed opts to lower borrowing costs, it could spur growth but risk higher inflation. On the other hand, the choice to raise interest rates may slow price increases but raises the likelihood of a cooldown in economic performance.
Last month, Federal Reserve Chairman Jerome Powellsaidthat despite rising energy prices and the potential impact on inflation, he doesn't think the central bank needs to raise interest rates.
Powell noted that central bankers often look past shocks -- such as sudden oil-price increases -- since the upward pressure on consumer prices usually proves temporary.
"We feel like our policy is in a good place for us to wait and see how that turns out," Powell said.
The benchmark interest rate stands at a level between 3.5% and 3.75%. That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.
Iran live updates: Iran says Hormuz is open to all ships that coordinate with Tehran
The Fed will announce its next rate decision on April 29. Investors overwhelmingly expect the Fed to leave rates unchanged, according to theCME FedWatch Tool, a measure of market sentiment.
The tool pegs a roughly 70% chance that the Fed will maintain interest rates at current levels for the remainder of the year.
