WASHINGTON — March witnessed a dramatic surge in a critical inflation indicator as fuel costs skyrocketed, marking the latest evidence that ongoing conflict with Iran is driving up household expenses and potentially postponing Federal Reserve interest rate reductions.
The Federal Reserve’s preferred inflation metric climbed 0.7% during March compared to February, representing a sharp acceleration from the prior month, according to Thursday’s Commerce Department data. Year-over-year price increases reached 3.5%, marking the steepest annual rise in nearly three years.
When removing volatile food and energy sectors, underlying inflation increased 0.3% month-over-month in March, with annual growth hitting 3.2% compared to the previous year. This yearly figure exceeded February’s 3% reading.
Rising fuel costs have driven inflation further from the Federal Reserve’s 2% objective. Fed Chair Jerome Powell indicated during Wednesday’s press briefing that the central bank would likely maintain current policy for several months while assessing the Iran conflict’s economic effects. The Fed has maintained its primary short-term rate steady following three reductions last year. Central banks typically maintain elevated rates — or increase them — when confronting rising inflation.
Gasoline prices surged nearly 21% in March versus the previous month, Thursday’s data revealed, while food costs actually declined 0.1%. Apparel expenses rose 1% during March alone.
National average gasoline prices reached $4.22 per gallon Thursday, according to AAA data, climbing from $2.98 before hostilities commenced. Domestic crude oil prices retreated slightly Thursday morning but remained above $105 per barrel, up from approximately $67 pre-conflict.
However, the Federal Reserve generally focuses more heavily on core pricing, and the extent to which elevated energy expenses influence core inflation during upcoming months will significantly impact the central bank’s future decisions.
“We’re very well aware that people are experiencing higher gas prices all over the country now,” Powell stated Wednesday. “And that hurts.”
Thursday’s data also revealed consumer spending jumped 0.9% last month, with the majority of that increase attributed to sharp price increases. Yet it also suggests Americans boosted their purchasing somewhat even when accounting for inflation, demonstrating consumer strength.
Economic growth reached a moderate 2% annual pace during the year’s first quarter, the Commerce Department reported Thursday, improving from just 0.5% expansion in last year’s fourth quarter, when the six-week government shutdown constrained growth.
