Annual inflation remained at 2.8% in the Federal Reserve’s preferred inflation gauge for February, before the energy price surge sparked by the war with Iran.
The personal consumption expenditures index report by the Bureau of Labor Statistics was released on Thursday morning.
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It shows that, even before oil prices soared in March, inflation was proving stubborn. Voters have cited inflation and affordability concerns as a top problem heading into the November midterm elections.
All eyes will be on Friday morning’s more closely watched consumer price index numbers for March, which are expected to show inflation increased by a whole percentage point because of the increase in energy prices.
On a month-to-month basis, PCE inflation rose 0.4%.
Core inflation, which strips out volatile food and energy prices, rose 3% on an annual basis. Core inflation was 0.4% on a monthly basis.
“Meanwhile, core consumer inflation is literally exploding with two gigantic increases of 0.4% in January and in February to start the year,” said Chris Rupkey, chief economist at FWDBONDS. “No Fed official worth his salt is going to vote for interest rate cuts as the inflation data is red hot even before the Iran War started.”
The Fed’s goal is 2% annual inflation in the PCE, which it hasn’t been able to achieve since inflation began taking off in early 2021.
The Fed has held its interest rate target steady for the past two meetings, all of 2026. Now, with the energy price increases following the war in Iran, the Fed is very unlikely to cut rates again at its next meeting later this month.
Most investors expect that the central bank will not cut interest rates again for the entirety of this year, according to CME Group’s FedWatch tool, which calculates the probability of rate changes using futures contract prices for rates in the short-term market targeted by the Fed.
Oil and gas prices have surged after the war with Iran began.
In mid-January, the average price of a gallon of all formulations of U.S. gas hit a recent low of $2.78, according to the U.S. Energy Information Administration. As of Monday, that had shot up to $4.12 per gallon. That marks a nearly 50% increase in such a short period.
In addition to inflation, the Fed is also closely tracking employment data, particularly given that there has been a gradual decline in job growth over the past year.
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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.
With revisions to the numbers for January and February, the three-month moving average of job gains was 68,000 in March.
