Rising oil and petrol prices linked to the Middle East conflict are expected to add to US inflation, with the March CPI report due on Friday. Traffic through the Strait of Hormuz is reportedly increasing, which may limit crude prices in the short term and is linked to backwardation.
Headline month-on-month CPI is expected to rise from 0.3% in February to 1.0% in March. That would be the biggest monthly gain since June 2022, shortly after Russia’s invasion of Ukraine.
Inflation Signals From Services And Fuel
The ISM Services Prices Paid index rose from 63.0 in February to 70.7 in March, the highest since October 2022. The one-month increase was the largest since 2012.
AAA daily petrol prices per gallon rose 36.2% in March, and continued to rise each day so far in April. ISM Services employment data is referenced as a possible signal of weaker jobs conditions.
FOMC minutes from March are due on Wednesday and may show differing views on the policy outlook. The March 2026 median dot was 3.375%, implying one rate cut this year, with an assumption of a weak labour market.
We are seeing a familiar pattern as renewed tensions in the Strait of Hormuz have pushed WTI crude futures above $95 a barrel, a level not sustained since late last year. This situation mirrors the oil shock we navigated back in the spring of 2025, which complicated the Federal Reserve’s path. The key difference now is that the market has less conviction that the Fed will look past the energy-driven price spike.
Market Positioning And Policy Risk
Last year in 2025, we saw the headline monthly CPI jump dramatically in March due to a similar energy price surge. Therefore, with gasoline prices nationally up nearly 15% in the last month to an average of $3.95/gallon according to the latest EIA data, we should anticipate a hot March 2026 CPI print this week. This makes positioning for an upside surprise through inflation swaps or options on TIPS ETFs a compelling strategy.
This creates a difficult situation for the Federal Reserve, just as it did throughout 2025 when they struggled to balance inflation against signs of a softening labor market. With the Fed’s next decision looming, implied volatility is on the rise, with the VIX index recently breaking above 18 for the first time this year. Traders should consider buying protection or speculating on wider market swings through options on the SPX or VIX futures.
The risk of stagflation, where inflation rises while economic growth slows, is now more pronounced than it has been in over a year. The latest ISM Services employment index dipped back into contraction territory, reminding us of the similar downturn signals we saw in the spring of 2025. This suggests considering downside hedges through index put options, while simultaneously looking at call options on energy sector ETFs to play the direct impact of higher crude prices.
