Inflation jumped seven-tenths of a percentage point to 3.5% for the year ending in March in the personal consumption expenditures index, the Bureau of Labor Statistics reported Thursday.
The surge in energy prices from the conflict with Iran drove much of the increase in headline inflation.
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The inflation reading is the highest since May 2023 for the PCE, which is the Federal Reserve’s preferred gauge.
In March alone, prices rose 0.7%. Energy prices were up 11% just in the month.
“There is a war on, and prices of energy are going through the roof,” Carl Weinberg, the chief economist for High Frequency Economics, wrote in a note on the report.
Inflation had been steady before the war began, although it was still above the 2% Federal Reserve target. Now, inflation is headed back up, adding to the woes that have led households to register record-low consumer sentiment and disapprove of President Donald Trump’s handling of the economy.
Rep. Brendan Boyle (D-PA), the top Democrat on the House Budget Committee, used Thursday’s report to blame the high inflation on policies backed by Trump and Republicans, including last year’s One Big Beautiful Bill Act.
“Donald Trump promised to lower costs on day one, but today’s report is more proof that was just a lie,” Boyle said in a statement. “His so-called ‘Big Beautiful Bill,’ his reckless tariffs, and his war of choice in Iran are driving up costs on everything from groceries to gas to health care.”
The increase was almost entirely driven by spiking energy prices.
Before the war began in late February, crude oil was trading at about $67 a barrel. Prices have soared to $120 a barrel for the international benchmark Brent crude as of Wednesday.
The rise in oil prices, in turn, has driven up gas prices to over $4 on average nationwide.
Core inflation, which strips out volatile food and energy prices, rose 3.2% on an annual basis. Core inflation was 0.3% on a monthly basis.
The Fed’s goal is 2% annual inflation, a target that the Fed hasn’t been able to achieve since inflation began taking off in early 2021.
The March PCE report comes a day after the Fed voted Wednesday to hold its rate target steady at a range of 3.50%-3.75%. The Fed has declined to cut interest rates at all of its meetings in 2026, after reducing its rate target three times last year.
The meeting was also the last one where Jerome Powell will be chairman. Trump’s nominee Kevin Warsh is expected to be confirmed in time for its next meeting in June.
Still, Powell announced that he will remain on the Fed’s Board of Governors beyond the end of his term as chairman next month, breaking with tradition at the central bank and preventing Trump from quickly nominating his replacement.
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In addition to inflation, the Fed is also closely tracking the labor market.
The economy showed surprising strength by adding 178,000 jobs in March, and the unemployment rate fell slightly to 4.3%, the Bureau of Labor Statistics said in an update last week. Still, overall employment growth has slowed gradually over time.
