U.S. wholesale prices moved higher in March, driven largely by energy costs that the Associated Press linked to the Iran war, the Labor Department reported Tuesday. In its producer price index, the agency measures inflation before it reaches consumers, and it showed a 0.5% monthly rise from February alongside a 4% year-over-year increase from March 2025. The year-over-year gain was the biggest in more than three years, according to the AP report.
Energy prices surged, with the Labor Department reporting an 8.5% jump from February. Core producer prices—excluding volatile food and energy—rose 0.1% from February and 3.8% from a year earlier, reflecting a smaller underlying move than the headline energy-driven increase.
The report underscored how quickly conflict-related changes in energy markets can feed into inflation pressures, and it added to the policy challenge for the Federal Reserve. The AP reported that the surge complicates efforts by “inflation fighters” at the central bank, which has faced pressure from President Donald Trump to lower its benchmark interest rate, while some Fed policymakers were inclined to raise rates instead because higher energy costs raise the inflation threat.
A separate inflation snapshot referenced in the AP report showed that consumer prices had already accelerated, with gasoline driving a 3.3% increase last month compared with a year earlier—the biggest year-over-year increase since May 2024—after consumer prices rose 0.9% from February. The AP also said food prices fell 0.3% in March after climbing 2.4% in the previous month.
Wholesale inflation has been a focus for economists partly because components can flow into the Fed’s preferred inflation gauge. The AP report said that measures that reflect items such as health care and financial services are watched because they feed into the personal consumption expenditures, or PCE, price index.
In a commentary cited by the AP, Carl Weinberg, chief economist at High Frequency Economics, said Tuesday that the decline in food prices was overdue. “The decline in food prices is overdue, and welcome news for everyone,” Weinberg said. “Food price increases are at the core of political arguments over affordability.”
The energy outlook also remained uncertain in the AP account. The Associated Press reported that a Tuesday forecast by the International Energy Agency called for an annual decline in oil demand for the first time since the pandemic, attributing the shift to disruptions tied to the Iran war, including attacks on energy infrastructure and a shutdown of the Strait of Hormuz.
The IEA said oil demand would decrease by an average of 80,000 barrels a day in 2026, a sharp revision from an earlier forecast of an increase of 850,000 barrels a day before the war began, the AP report said. The AP added that the agency expected a decline of 1.5 million barrels in the current quarter, describing the March drop as particularly severe.
The AP also reported that 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.” He said: “So the conflict will end, prices will come down, and then headline inflation will come down, and with that, gasoline prices will come down.” The AP said gasoline prices had edged down over the prior 10 days, declining about 3 cents per gallon, but still remained above $4 per gallon and about 30% higher than a year earlier.
Washington enacted its blockade of Iranian ports this week, while Tehran threatened to strike targets across the region, according to the AP report. Diplomats continued attempts to arrange a new round of peace talks between the United States and Iran, as the wholesale-price data pointed to near-term inflation sensitivity to energy costs.
The AP report said AP Washington correspondent Sagar Meghani contributed to the coverage, along with AP reporters Michelle Chapman in New York City and Fatima Hussein in Washington.