A key inflation measure that is closely watched by Federal Reserve policymakers jumped last month to reach its highest level in nearly three years. As gas prices rose, the Commerce Department’s personal consumption expenditures price index for March climbed 3.5% compared to the same month a year ago. On a monthly basis, the measure was up 0.7%. Excluding volatile food and energy prices, inflation still ran hotter than the Fed wants, up 3.2% from a year ago compared with a 3% rate in February.
The latest figures highlight ongoing affordability concerns at the heart of much political debate and call into question whether or when the Fed might see fit to lower interest rates. The central bank cut rates three times last year but has paused that campaign as it monitors the economy and evaluates the inflationary effects of President Trump’s trade policies and now the war in Iran.
Gas prices soaring again: Gas prices jumped in March, after the Iran war began, and have surged again after edging lower for a period of almost two weeks. With oil prices climbing well above $100 a barrel again, the national average price of a gallon of regular gasoline has soared 27 cents in one week, reaching $4.30, up from $2.98 before the war began, according to AAA. The national average is now $1.12 higher than it was at this time last year, bringing gas prices to their highest level in almost four years.
In remarks to reporters in the Oval Office today, President Trump downplayed the increase in gas prices, promising they would drop “rapidly” once the Iran war ends. “Gas will go down the minute the war is over,” Trump said. That’s unlikely, though, given that prices tend to rise far faster than they come down.
Economy rebounds to start 2026: The Commerce Department also said Thursday that the economy grew at a 2% annual rate over the first three months of the year, slightly below economists’ consensus expectations but an improvement over the 0.5% growth rate over the last quarter of 2025. The faster growth was fueled in part by government spending that rebounded after a six-week shutdown late last year.
That boost from government spending isn’t expected to continue in the months ahead, putting a sharper focus on consumer spending that has held up well so far, despite dismal readings on sentiment. Personal consumption grew 1.6% over the first quarter, a bit better than expected, but perhaps not enough to allay fears for the coming months. “The U.S. consumer’s momentum is fading amid deteriorating sentiment and renewed inflation pressure,” economist Kurt Rankin of the PNC Financial Services Group wrote in a note to clients.
The government report is just the first estimate for the quarter, and revisions could produce a different picture.