Gas prices are displayed at a station in Brooklyn on April 21, 2026 in New York City.
Spencer Platt getty images
Consumers faced rising prices in March as the Iran war sent oil soaring and created a new level of challenges for the Federal Reserve, according to a batch of reports Thursday showing economic growth slower than expected and layoffs at a generation low.
The Commerce Department reported Thursday that the core personal consumption expenditures price index, which excludes food and energy, increased a seasonally adjusted 0.3% for the month, bringing the 12-month inflation rate to 3.2%. The reading matched the Dow Jones consensus estimate. Core inflation reached its highest level since November 2023.
Higher readings were seen when including volatile gas and grocery components, with the monthly gain reaching 0.7% and the annual rate reaching 3.5%, also in line with forecasts.
In other economic news Thursday, the Commerce Department reported that gross domestic product grew at a 2% seasonally adjusted annual pace in the first quarter, up from 0.5% in the fourth quarter of 2025, but below the 2.2% estimate. The modest growth rate came despite increased spending on artificial intelligence that should have increased since the end of last year’s government shutdown.
Also, the Labor Department reported that initial jobless claims for the week ending April 25 totaled a seasonally adjusted 189,000, a decline of 26,000 from the previous week and well below the 212,000 estimate. It was the lowest reading since September 1969 for the labor market, which has been in low-hire and low-fire mode for most of the past year.
“It’s a split-screen economy,” said Heather Long, chief economist at Navy Federal Credit Union. “Companies and investors involved in AI are on fire. Meanwhile, middle- and middle-income families are struggling with higher gas prices and inflation that is at its hottest level in three years.”
The data came a day after the Federal Open Market Committee, the central bank’s rate-setting arm, voted to keep interest rates on hold again. However, the vote came with four abstentions, reflecting disagreements within the Fed over the appropriate setting of monetary policy and how to respond to economic cross currents, including inflation above target for five consecutive years and a stagnant labor market.
Three regional chairmen were also among the four votes cast against the FOMC’s statement after the meeting. He objected to the phrasing that the next step for rates would be lower.
Inflation reports indicate the bulk of price pressure came from commodities, which rose 1.4%, boosted by an 11.6% rise in energy goods and services. Prices of services rose 0.3% overall.
It appears likely that rising energy prices will cut into inflation-adjusted consumer spending.
According to the GDP tally, personal spending increased only 1.6% for the month as outlays for goods declined 0.1%. Actual final sales to private home buyers, a more detailed measure of consumer demand, rose 2.5%. Spending eased in the first quarter: Personal consumption spending rose 0.9% in March, boosted by a jump in prices at the pump, now above $4 a gallon.
A 4.4% increase in government spending, including a 9.3% increase at the federal level, also contributed to the quarterly gain.
