Iran War Pushes US Inflation to 3.8% as Petrol Prices Surge 28% in a Year

The Iran war is now officially showing up on Americans' receipts. US consumer prices rose 3.8 percent in April compared to a year earlier, driven by a 28 percent surge in petrol costs, according to government data released Tuesday. On a monthly basis, prices climbed 0.6 percent from March, with petrol alone up 5.4 percent during that single month.

The numbers come from the US Department of Labour's consumer price index. The month-over-month gain was actually down from the 0.9 percent increase recorded between February and March, suggesting the pace of acceleration may be slowing – but not enough to offer much relief at the pump.

The AAA motor club reported that the average price of a gallon of petrol was above $4.50 on Tuesday, roughly 44 percent higher than at the same time last year. Excluding volatile food and energy costs, so-called core prices rose 0.4 percent from March and 2.8 percent from April 2025. Those relatively modest core readings suggest the energy price spike has not yet spread broadly into other goods and services – but the grocery aisle tells a different story. Food prices rose 0.7 percent from March to April, driven by higher meat costs, after retreating slightly the month before.

Heather Long, chief economist at Navy Federal Credit Union, was quoted as saying that inflation is now the key drag on the US economy. She added that a real financial squeeze is under way, noting that for the first time in three years, inflation is eating up all wage gains. Long said this is a setback for middle-class and lower-income households, and that they are having to cut back on spending and stretch every dollar.

The numbers back her up. In April, average hourly wages fell 0.3 percent from a year earlier after adjusting for inflation. That is the first year-on-year drop in three years.

Inflation had been falling more or less steadily since peaking at 9.1 percent in June 2022 – a surge caused by post-COVID supply chain bottlenecks and the energy price shock following Russia's full-scale invasion of Ukraine. But inflation remained above the Federal Reserve's 2 percent target. Then came 28 February, when the US and Israel attacked Iran. Tehran responded by bombarding its neighbours and shutting off access to the Strait of Hormuz, through which a fifth of the world's oil and liquefied natural gas passes. Energy prices skyrocketed.

The Federal Reserve, which had been expected to cut its benchmark interest rates in 2026, has become cautious as it waits to see how long the war will last and whether higher energy prices spill into other products, triggering a broader inflationary outbreak. President Donald Trump has publicly criticised the Fed and its outgoing chair Jerome Powell for refusing to slash rates to boost the economy. Trump's hand-picked successor to Powell, Kevin Warsh, is expected to be confirmed by the Senate this week. It remains unclear whether Warsh would pursue lower rates given the uncertainties arising from the war – or whether he could persuade his colleagues on the Fed's rate-setting committee to go along if he tried.

Some companies are already feeling the pain. Whirlpool, which makes KitchenAid and Maytag appliances, reported last week that revenue dropped nearly 10 percent in its most recent quarter and said the war has caused a "recession-level industry decline" that has undermined consumer confidence.

For a more ground-level view, consider Grace King, a 31-year-old administrative assistant from Ames, Iowa. She said higher prices in the food aisle and at the pump are forcing her to cut back on clothing spending. She used to spend $200 per month on clothing, mostly on Amazon, but no longer does. "There's pressure basically everywhere from the groceries that I buy to the gas to fill up the tank," she said. "I've severely cut back on my frill spending."

So the war in the Middle East is now hitting Middle America's wallet. The Fed is watching. Wages are shrinking. And one thing is clear: the days of $200 monthly Amazon hauls are on hold.