The March inflation data landed with a clear focus on energy costs, showing gas prices surging and pushing overall prices higher after a month of elevated prices. The Commerce Department reported that an inflation gauge the Federal Reserve monitors rose 0.7% in March from February, and that it climbed 3.5% compared with a year earlier, the biggest increase in almost three years. The report also showed core inflation—excluding the volatile food and energy categories—rose 0.3% from February and was up 3.2% from a year earlier.
The increase in headline inflation reflected the latest jump in gasoline costs, which has been tied in recent reporting to the wider impact of the Iran war on energy supply and prices. The Commerce Department said gas prices jumped nearly 21% in March from the previous month, while grocery prices declined 0.1% and clothing costs rose 1% in that same period. The average price of gas nationwide rose to $4.30 a gallon, according to AAA, up from $2.98 before the war began, a sharp shift that has added to household budgets and changed how quickly higher prices flow through the economy.
That higher inflation comes as the Fed evaluates whether rate cuts can proceed on schedule. Outgoing Fed Chair Jerome Powell signaled at a news conference Wednesday that the central bank would likely be on hold for months as it assesses the effect of the Iran war. The Fed has kept its key short-term interest rate unchanged after cutting it three times last year, and the central bank typically keeps rates elevated—or raises them—to fight inflation that remains above target.
In remarks Wednesday, Powell addressed the reality of higher pump prices for consumers, saying: “We’re very well aware that people are experiencing higher gas prices all over the country now. And that hurts.” The inflation report released Thursday added to that pressure by showing that overall prices moved farther away from the Fed’s 2% target, even as core prices rose more modestly than gasoline.
The report also offered signals beyond inflation itself, including whether pay and spending are keeping up with rising costs. The Commerce Department said Americans’ incomes—in the measure that includes wages, business income and government benefits—rose 0.6%, a solid gain but slower than the rate of inflation for a second straight month. The same release showed consumer spending increased 0.9% last month, with much of the increase reflecting the sharp jump in prices, and it also indicated that people lifted spending even after adjusting for inflation.
The data underscored a second risk tied to energy-driven inflation: higher gas costs can divert spending away from other goods and services, potentially slowing growth. For now, the report noted that consumers have had support from healthy tax refunds lifted by last year’s tax-cut legislation, but much of that benefit has been absorbed by higher prices at the pump.
Analysts cited in the coverage linked the inflation and energy shock to a weaker outlook for growth. Joe Brusuelas, chief economist at RSM, said a year that was set to benefit from “tail winds associated with a large tax cut and boom in artificial intelligence-led investment has been partially derailed by the impact of what as of today is an adverse and growing supply shock caused by the war in Iran.” Brusuelas added that the war and the ensuing supply shock “has altered the probable growth path this year,” and he said he now expects the economy to expand 1.7% this year, down from an earlier estimate of 2.4%.
The report also said the economy expanded at a 2% annual rate in the first three months of the year, up from an expansion of 0.5% in last year’s final quarter, when growth was held back by a six-week government shutdown. Taken together, the March inflation reading and the spending and income figures suggest that consumer activity is still present even as energy costs keep pressure on prices and potentially delay the Fed’s ability to move toward cuts.
Sources:
- Associated Press (Christopher Rugaber), April 30, 2026