Inflation surges to 3.5% in March as Iran war drives energy costs higher
The Federal Reserve's key inflation gauge jumped to 3.5% in March—the highest level in nearly three years—as soaring oil prices from the Iran conflict pushed up prices across the economy. Real consumer spending weakened significantly as Americans diverted dollars toward gasoline at record-high pump prices.
PCE Inflation Accelerates to 3.5%
Fast-rising gas prices lifted the Federal Reserve's preferred inflation gauge to 3.5% in March, its highest rate in almost three years, new data showed Thursday. The Personal Consumption Expenditures price index rose 0.7% from February, a faster-than-expected acceleration from the previous monthly pace of 0.4%, the Commerce Department reported Thursday.
Energy Shock Drives Core Inflation Higher
The core personal consumption expenditures price index, which excludes food and energy, accelerated a seasonally adjusted 0.3% for the month, pushing the 12-month inflation rate to 3.2%, the Commerce Department reported Thursday. Core inflation hit its highest level since November 2023.
Real Consumer Spending Weakens
Consumer spending jumped 0.9% from February, but when taking inflation into account, it rose just 0.2%. The dollars consumers put in their gas tanks and toward other energy goods accounted for 42% of the month's spending change, Commerce Department data shows.
Gas Prices Hit Four-Year Highs
US average gasoline prices hit a four-year high of $4.30 per gallon on Thursday, according to AAA.
Split-Screen Economy Emerges
"This is a split-screen economy," said Heather Long, chief economist at Navy Federal Credit Union. "Companies and investors involved in AI are on fire. Meanwhile, middle and moderate income households are struggling with high gas prices and inflation that's back at the hottest level in three years."