Iran War Fuels US Inflation Surge as Gasoline Prices Jump 28%

A global oil supply shock from the Iran war is hitting U.S. motorists and consumers hard, according to new federal data.

Higher energy prices made up 40% of the total inflation jump in April. The Consumer Price Index rose at an annual rate of 3.8%, the fastest increase in nearly three years.

Gasoline prices jumped more than 28% from a year earlier last month, the Department of Labor reported. Overall energy costs, including gas, heating oil and electricity, climbed nearly 18% over the same period.

For millions of workers, the price spike over the past two months means inflation now exceeds wage growth, Wall Street analysts said.

"That is a very clear illustration of the impact that higher energy prices are having in squeezing households' real wages," Brian Coulton, chief economist at Fitch Ratings, said in an email. He warned that headline inflation could exceed 4% by the next CPI report in early June if oil prices stay high.

The national average price for a gallon of gasoline now stands at $4.50, up more than $1.50 since the war began, according to AAA. The U.S. Energy Information Administration forecast on Tuesday that retail gas prices will average $3.88 per gallon for the rest of the year and $3.62 per gallon in 2027.

Before the Middle East conflict started in February, the national average hovered just below $3 per gallon.

Patrick De Haan, a petroleum expert at GasBuddy, estimates Americans have spent an extra $28 billion on gas since March 1 due to higher prices. He said $22 billion of that stems directly from the Iran war.

Trump administration officials expect the oil flow disruptions from the Middle East conflict to prove temporary. They predict U.S. gas prices will drop quickly once crude supplies resume.

"The April CPI report reinforces, however, that President Trump's long-term economic agenda continues to deliver despite these disruptions: Drug and hospital services prices are declining thanks to the President's Most-Favored-Nation and price transparency initiatives, while trillions in investments continue to drive robust real wage growth for manufacturing and construction workers," White House spokesman Kush Desai said in a statement to CBS News.

Electricity prices across the U.S. rose an average of 6.1% in April from a year ago. The increase coincides with technology companies rushing to launch data centers that require massive energy for AI services.

Goldman Sachs analysts said in a recent report they expect the data center boom to lift electricity demand and boost inflation over the next two years.

Airfares climbed nearly 21% in April from a year earlier, CPI data shows. Airlines are raising prices to offset jet fuel costs, which have increased more than $1.50 since before the war, according to Airlines for America, a trade association.

The Iran war could push grocery prices higher by raising diesel costs, used heavily in transportation, shipping and agriculture. Diesel averaged $5.64 a gallon on Tuesday, 18 cents below its June 2022 record high, AAA data shows.

Food prices rose 3.2% in April from a year ago, per the latest CPI data.

Economists predict U.S. inflation will pick up in coming months as war effects ripple through the economy.

"Even if the war in Iran were to end today, the tail of the economic crisis it has created will last months or longer, from gasoline to food to utility prices," Janelle Jones, visiting senior fellow at the progressive Century Foundation and former chief economist at the Department of Labor, said in an email.

Gregory Daco, chief economist at EY-Parthenon, expects the annual inflation rate to top 4% in May. Core inflation, excluding volatile food and energy, will near 3%. April core inflation hit 2.8%, above the 2.7% forecast from FactSet economists.