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US inflation accelerated in March, with the increase linked to higher gasoline prices amid the Iran war, strengthening expectations in financial markets that the Federal Reserve could keep interest rates unchanged well into next year.
The personal consumption expenditures (PCE) price index rose 0.7% last month, the largest gain since June 2022, after an unrevised 0.4% increase in February, the Commerce Department’s Bureau of Economic Analysis said. The reading matched economists’ expectations.
On a 12-month basis, PCE inflation accelerated to 3.5% through March, the biggest rise since May 2023, up from 2.8% in February. The data was included in the advance first-quarter GDP report released on Thursday.
Gasoline prices were a key driver. The average national retail gasoline price jumped 24.1% in March, according to data from the US Energy Information Administration. The report noted that pump prices have continued to rise, reaching their highest level in nearly four years this week.
Excluding the volatile food and energy components, the PCE price index increased 0.3% in March after rising 0.4% in February. Core PCE inflation advanced 3.2% over the 12 months through March, following a 3.2% increase in February.
On Wednesday, the Federal Reserve left its benchmark overnight interest rate unchanged in the 3.50%-3.75% range, citing rising inflation concerns tied to the conflict. The Fed uses the PCE price measures to gauge progress toward its 2% inflation target.
Inflation also supported consumer spending in March. Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.9% after increasing 0.6% in February.
However, when adjusted for inflation, spending grew by only 0.2% after a 0.3% gain in February, placing consumption and the broader economy on a slower growth path heading into the second quarter.
The article said economists expect the economic fallout from the war to become more pronounced in the second quarter.
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