Inflation Surge Tied to Iran War

In March, the Federal Reserve’s preferred Personal Consumption Expenditures (PCE) price index rose 0.7% from February, lifting the annual inflation rate to 3.5%—the highest level since May 2023. Gasoline prices jumped 21% month-over-month, raising the national average to $4.30 per gallon. Core inflation, which excludes food and energy, increased 0.3% month-to-month and 3.2% year-to-year. The surge follows the U.S.–Israeli war with Iran, which has throttled Gulf shipping and pushed crude oil from about $67 to over $105 a barrel.

CNN

Gasoline rose 21% to $4.30 per gallon (up from $2.98 pre-war). Overall PCE inflation hit 3.5% annually and 0.7% monthly; core PCE was 3.2% year-over-year and 0.3% month-to-month. Consumer spending increased 0.9% nominally, with energy accounting for 42% of the rise; real spending grew 0.2%. Household income rose 0.6% while disposable income fell 0.1% after inflation. The personal saving rate slipped to 3.6%.

CNN

Fed Chair Jerome Powell said the central bank will likely keep policy rates unchanged for months while it evaluates the war’s impact on inflation. He noted the “higher gas prices all over the country” and described the economy as “quite resilient” despite misbehaving inflation.

Associated Press

Economists warn that sustained energy-driven inflation could outpace wage growth and erode household purchasing power. Scott Anderson of BMO Capital Markets highlighted the rapid decline in the personal saving rate as a cautionary signal that consumers may struggle if price pressures continue.

CNN

All sources agree on the size of the gas price jump and the overall inflation rise, but regional price effects and the exact pass-through of oil costs to other goods remain unquantified.

Associated Press

• “A year that was set to benefit from tail winds associated with a large tax cut and boom in artificial intelligence-led investment has been partially derailed by the impact of what as of today is an adverse and growing supply shock caused by thewar in Iran,” — Joe Brusuelas, chief economist, RSM.

Associated Press

• “We’re very well aware that people are experiencing higher gas prices all over the country now,” — Jerome Powell, Federal Reserve Chair.

Associated Press

• “The economy has remained “quite resilient,” despite inflation “misbehaving,” Fed Chair Jerome Powell said Wednesday as the US central bank opted to leave interest rates unchanged.” — Jerome Powell, Federal Reserve Chair.

CNN

• “If inflation pressures continue to build in the months ahead, it will be more and more difficult for consumers to keep up,” — Scott Anderson, chief US economist, BMO Capital Markets.

CNN

Future Fed meetings will hinge on whether energy-driven inflation persists. Upcoming Commerce Department releases on price dynamics and savings are expected to shape the central bank’s rate decision in the second quarter.

CNN