U.S. inflation snapped higher in March, with the Fed’s preferred gauge, the personal consumption expenditures price index, rising 0.7% on the month and 3.5% from a year earlier — the hottest reading since mid-2023. Core PCE, which strips out food and energy, was steadier at 0.3% month over month and 3.2% year over year.
The jump was driven by gasoline, after the Iran war pushed up fuel prices; the average national retail gas price surged 24.1% in March. The Fed had already held its benchmark rate in the 3.50%-3.75% range this week, citing inflation risks from the conflict, and the new data makes that pause look less like caution and more like necessity.
- PCE rose 0.7% in March, the biggest monthly gain since June 2022.
- Annual PCE inflation reached 3.5%, the sharpest pace since May 2023.
- Real consumer spending rose just 0.2% after inflation, even as nominal spending jumped 0.9%.
That is the reframing: the story is no longer just that prices are elevated. It is that energy is reasserting itself as the variable that sets the path for inflation, rates, and consumer demand all at once. With core inflation still stuck at 3.2%, the Fed cannot lean on an easy “transitory” read.
Consumers are still spending, but the inflation-adjusted version of that spending is slowing fast. If gasoline stays near recent highs into the second quarter, the Fed’s room to cut rates stays shut, and the economy enters the next leg with less real momentum than the headline spending number suggests.
