U.S. inflation just got a fresh energy shock. The Fed’s preferred gauge rose 0.7% in March and 3.5% from a year earlier, the biggest annual gain in nearly three years, after the Iran war pushed gasoline prices higher.
Core PCE, which strips out food and energy, was still sticky at 3.2% year over year, matching expectations but staying well above the Fed’s 2% target. The central bank held its benchmark rate in the 3.50%-3.75% range this week, and the market is now pricing a longer wait for relief.
- Monthly PCE rose 0.7%, the fastest pace since June 2022, after a 0.4% increase in February.
- Average U.S. gasoline prices jumped 24.1% in March, with pump prices reaching their highest level in nearly four years this week.
- Consumer spending climbed 0.9% nominally, but only 0.2% after inflation, which is slower than the headline suggests.
The reframing here is simple: inflation is no longer just a backdrop to the Fed’s rate decisions; it is the constraint. Even with core prices only moving in line with forecasts, the energy spike keeps the central bank boxed in and turns the next jobs and spending data into evidence on whether the shock is spreading.
For households and businesses, that means higher fuel costs can still bleed into second-quarter demand, and the relief narrative stays fragile unless oil and gasoline cool fast. If pump prices keep climbing, the case for near-term rate cuts gets weaker, not stronger.
