(Mike Maharrey, Money Metals News Service) The expected surge in prices due to the Iran War showed up in the March CPI data. However, it doesn’t tell the real inflation story.
Without a doubt, price inflation is up. The cost of the basket of goods the BLS uses to calculate the CPI rose 0.9 percent month-on-month, according to the data released Friday. That was the largest single-month jump since the height of the post-pandemic surge in 2022.
The big monthly rise in prices pushed the headline annual CPI to 3.3 percent. The last time it was that high was March 2024.
Both numbers were in line with forecasts.
The surge in CPI was almost entirely due to skyrocketing energy prices. The energy index rose 10.9 percent month-to-month. That was driven by a 21.2 percent monthly increase in gasoline prices.
However, stripping out the more volatile food and energy prices, core CPI was relatively cool, rising just 0.2 percent from month to month. Annual core inflation nudged up slightly, from 2.5 percent in February to 2.6 percent in March.
As CNBC noted, based on the CPI, underlying inflation is “relatively tame.” (It is not — a point I’ll get to in a moment.)
It’s important to point out that core CPI remains above the Fed’s stated 2 percent target and has been mired in this range for well over a year.
Digging deeper into the data, we find that many indices showed no price increases at all. For instance, food prices were unchanged from February to March. Service prices were also relatively tame, rising by 0.2 percent month-on-month.
As I mentioned, any time I report on government CPI data, it’s important to take this (and every) CPI report with a grain of salt. It is still factoring in November data that they basically just made up. And the constant revisions to the labor data should also make you skeptical of government numbers.
You also need to remember that the CPI data understates price inflation by design. The government revised the CPI formula in the 1990s so that it understated the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers. So, if the BLS used the old formula, we’d be looking at CPI closer to 6 percent. And using an honest formula, it would probably be worse than that.
However, this government data drives decision-making, so we need to pay attention to what it tells us.
The Real Inflation Story
As I reported last month, the CPI doesn’t tell the full inflation story. It simply reflects the price movements of a basket of goods made up out of thin air by the number crunchers at the BLS. Yes, this does give some indication of the trajectory of price inflation. However, it tells us little to nothing about the inflation trajectory as historically defined by economists.
Inflation is not “rising prices.” Increasing consumer prices are one symptom of inflation, defined as an increase in the supply of money and credit. Rising consumer prices are a symptom of this monetary inflation.
And if we look at the money supply, we find that inflation is heating up, with or without an oil shock.
In fact, if we use the economic definition of inflation as an increase in the money supply, the inflation rate is much higher – double the CPI.
Based on the Fed’s M2 data, the money supply has increased from $21.61 trillion in February 2025 to $22.67 trillion in February 2026.
That represents a 4.9 percent increase.
In other words, we have an actual inflation rate of nearly 5 percent.
After peaking in April 2022, the money supply began to decline as the Fed hiked rates that year. The money supply bottomed in October 2023 and began increasing again. The money supply is now well above the pandemic peak.
And money creation has accelerated over the last several months.
We also know inflationary pressures are increasing because the Federal Reserve is once again expanding its balance sheet.
While you’ll never hear anybody at the Fed utter the term, the central bank relaunched quantitative easing in December. That means they are once again buying U.S. Treasuries using money created out of thin air.
Ultimately, this monetary inflation will work its way through the economy. It will either manifest in rising asset prices or rising consumer prices. Ultimately, it is devaluing your money (by design).
If the U.S. and Iran can negotiate a permanent end to hostilities, this oil shock will quickly pass. The pundits and prognosticators will claim the inflation problem is gone. It won’t be. As long as the government keeps creating money, the inflation problem will persist.
Plan accordingly.
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
