* Consumer Price Index forecast increasing 0.9% in March

* CPI estimated to have advanced 3.3% year-on-year

* CPI excluding food and energy likely gained 0.3%

* Core CPI estimated to have increased 2.7% year-on-year

By Lucia Mutikani

WASHINGTON, April 10 (Reuters) - U.S. consumer prices

likely recorded their biggest increase in nearly four years in

March as the war with Iran boosted oil prices and the

pass-through from tariffs persisted, which would further

diminish hopes for an interest rate cut this year.

The anticipated surge in the monthly Consumer Price Index would

follow in the wake of a sharp rebound in job growth last month,

which suggested the labor market remained stable. There are,

however, concerns that a prolonged conflict in the Middle East

could undercut the labor market, especially if households

respond to high prices by pulling back spending.

The U.S.-Israeli war with Iran has sent global crude oil prices

surging more than 30%, with the national average retail gasoline

price breaking above $4 a gallon for the first time in more than

three years. Though President Donald Trump on Tuesday announced

a two-week ceasefire on the condition that Tehran reopen the

Strait of Hormuz, the truce appeared fragile.

The Labor Department's CPI report on Friday is most likely

to only show the immediate effects of the oil price shock, which

has also raised the cost of diesel. An underlying measure of

inflation that excludes the volatile food and energy components

likely increased at a moderate pace, economists predicted.

"The top level CPI is going to look pretty ugly," said Brian

Bethune, an economics professor at Boston College. "There is a

second wave coming, which will be the fuel surcharges that will

start to show up and cross to the other commodities, food in

particular will be hit."

The CPI likely increased 0.9% last month, a Reuters survey

of economists predicted. That would be the largest monthly gain

since June 2022, when prices soared in response to the

Russia-Ukraine war. Estimates ranged from a 0.4% gain to a 1.7%

jump. Consumer prices rose 0.3% in February.

In the 12 months through March, the CPI was estimated to

have advanced 3.3%. That would be the largest increase since May

2024 and follow a 2.4% rise in February. Though the CPI would be

well below its 9.1% peak in June 2022, March's anticipated surge

would underscore the affordability challenges facing consumers.

Trump romped to victory in the 2024 presidential election

promising to lower prices.

WORKING FAMILIES HAVE BEEN BETRAYED

"Trump has betrayed working families," said Alex Jacquez,

chief of policy and advocacy at Groundwork Collaborative, a

think tank and progressive advocacy group. "The president's

illegal war in Iran is just the latest in his misguided economic

agenda that continues to pummel American families, small

businesses and communities."

Outside of food and energy, the CPI is forecast to have

risen 0.3% last month after climbing 0.2% in February. That

would translate to a year-on-year increase of 2.7% in the

so-called core CPI. The expected moderate rise after a 2.5%

advance in February will likely offer no comfort for officials

at the U.S. central bank, with an acceleration expected in April

as the secondary effects of the oil price shock filter through.

The Fed tracks the Personal Consumption Expenditures price

indexes for its 2% inflation target. Those measures posted

strong monthly gains in February. Both core CPI and PCE

inflation have been driven by businesses passing on some of

Trump's broad tariffs to consumers, offsetting the

disinflationary trend in rents.

Tariffs have raised prices of goods, including apparel,

household furnishings, communication, personal grooming products

as well as recreational goods and vehicles.

In the months ahead, economists expect the Middle East

conflict to lift core prices through expensive jet fuel that

will raise airline fares, and diesel, which will increase the

cost of goods transported by road. Prices of fertilizer and

plastics, among other goods, are also expected to rise.

"Even though we have had a pretty sharp drawdown in prices

in the last couple of days, that increase we saw is in the

pipeline, and we are going to continue to see increases in

inflation," said Dan North, senior economist at Allianz Trade

Americas. North added that the duration of the conflict would

determine how long the inflation fallout persisted.

Rising inflation has left some economists believing the Fed

would not reduce borrowing costs this year, a conviction that

was reinforced by the release on Wednesday of minutes of the

central bank's March 17-18 policy meeting, which showed a

growing group of policymakers last month felt that rate hikes

might be needed. The Fed left its benchmark overnight interest

rate in the 3.50%-3.75% range.

Some economists still see a chance of a rate cut if labor

market conditions deteriorate. Others argued that consumers

pulling back as gasoline prices eroded their purchasing power

could make it difficult for some businesses to pass on higher

costs from oil prices.

"When we look out, let's say towards the final quarter of

2026 and the end of the year, there may be some element that

pushes the Fed to ease monetary policy, but that would be for

bad reasons," said Gregory Daco, chief economist at EY

Parthenon. "But we have to contend with this very real

possibility that the next Fed move is a rate hike."

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