The war in Iran sent fresh tremors through the U.S. economy last week, propelling inflation to its fastest annual pace in nearly three years while gasoline prices soared to levels not seen in multiple years. The surge was captured by the Personal Consumption Expenditures price index, a gauge the Federal Reserve watches closely. The Commerce Department said prices rose 0.7% in March from February, a sharp acceleration, and were 3.5% higher than a year earlier. Core inflation, which strips out volatile food and energy categories, climbed 0.3% during the same month and held at 3.2% on an annual basis, above February’s 3% reading.
At the pump, the average price of a gallon of regular gasoline rocketed to $4.39, a multi-year high, after posting the largest single overnight gain since the war began. Prices continued to edge upward Saturday, according to figures compiled by the American Automobile Association.
Despite the inflationary pressure, the job market displayed remarkable resilience. The Labor Department reported that initial claims for unemployment benefits dropped by 26,000 to 189,000 for the week ending April 25. That was the fewest new filings since September 1969 and well below the 214,000 claims analysts surveyed by FactSet had expected. The claims report is regarded as a near-real-time gauge of U.S. layoffs.
The broader economy also showed signs of momentum. Gross domestic product — the nation’s output of goods and services — grew at a 2% annual rate in the first quarter of 2026, the Commerce Department said. The expansion marked a recovery from the fourth quarter of 2025, when growth slumped to 0.5% largely because of the 43-day federal government shutdown. Federal spending and investment rebounded in the first quarter, surging at a 9.3% annual rate and adding more than half a percentage point to overall growth.
The housing market felt the ripple of higher interest rates. The benchmark 30-year fixed-rate mortgage rose to 6.3% from 6.23% a week earlier, mortgage buyer Freddie Mac reported, breaking a three-week string of declines. While the average rate is still below the 6.76% recorded a year ago, the uptick raises borrowing costs for buyers during the critical spring homebuying season.
Consumer confidence perked up slightly but remained subdued. The Conference Board’s index edged to 92.8 in April from 92.2 in March, still mired near levels last seen during the early months of the pandemic. In their survey responses, Americans voiced growing unease about rising oil and gas prices and the trajectory of the war.
U.S. stock markets closed the week higher, with the S&P 500, the Dow Jones Industrial Average and the Nasdaq composite all posting gains. Big Tech earnings, including results from Apple, powered the advance even as oil prices continued to climb. Many overseas markets were shut Friday for the May Day holiday.