The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, surged in March, reaching an annual rate of 3.5% — the highest level since spring 2023 and up sharply from 2.8% in February. This marks the largest year-over-year increase in two years, driven primarily by rising oil prices linked to the Iran conflict.
The headline PCE index rose 0.7% in March, its biggest monthly gain since mid-2022. Core PCE, which excludes volatile food and energy prices, increased 0.3% for the month and posted a 12-month rate of 3.2%, according to data released by the US Commerce Department on Thursday. Both figures were in line with Dow Jones estimates, indicating persistent underlying inflation.
The sharp rise in headline inflation was largely attributed to higher gasoline and energy costs, reflecting a surge in crude oil prices as tensions between the US and Iran intensified. The March data captures the first full month of the conflict, offering an early indication of how geopolitical risks are feeding into domestic price pressures.
Federal Reserve Chair Jerome Powell had already flagged the risk of sustained inflation during the central bank’s April policy meeting, noting that elevated energy prices could continue to push up costs in the near term. With oil prices rising again amid an ongoing stalemate between Washington and Tehran, economists warn that inflationary pressures could persist for longer than previously expected, reducing the likelihood of near-term interest rate cuts.
Consumer spending rose 0.9% in March compared with February. However, after adjusting for inflation, real spending increased by just 0.2%, indicating that much of the nominal growth was driven by rising prices rather than stronger demand. The US economy expanded at a 2% annualized pace in the first quarter, according to an initial estimate from the Bureau of Economic Analysis, slightly below expectations of 2.2% but an improvement from 0.5% growth in the previous quarter.
