WASHINGTON, May 1, 2026 – U.S. consumer prices saw their fastest pace of increase in almost three years last month. The Commerce Department reported on Thursday that its primary inflation measure, the Personal Consumption Expenditures price index, rose 0.7 percent from February to March. On an annual basis, inflation reached 3.5 percent. This is the biggest year-over-year gain recorded since May 2023.
A significant surge in energy costs drove these figures. Gasoline prices shot up 21 percent in March from February. This price spike followed the closure of the Strait of Hormuz after Iran responded to U.S. and Israeli attacks, creating the biggest disruption of oil supplies in history. The average price of gas nationwide rose to $4.30 a gallon Thursday, up from $2.98 before the war began. Some stations in downstate Michigan had gas prices near or topping $5 a gallon, and in the Iron Mountain area, stations had prices of $4.69 a gallon posted Thursday evening. In market trading, oil prices surged overnight before dialing back, with Brent crude for July delivery settling at $110.40, far above its roughly $70 level from before the war.
Core inflation, which excludes volatile food and energy costs, rose 0.3%. The core PCE price index rose 0.3 percent in March, which aligned with market expectations. However, the inflation data showed that prices outgrew American incomes, including wages, business income, and government benefits, for the second straight month.
The rise in inflation happened alongside a period of steady economic growth. During the first quarter, the U.S. gross domestic product grew at a 2.0 percent annualized rate. This growth was a rebound from lackluster 0.5 percent growth during the final three months of 2025, during which a 43-day federal government shutdown had slashed more than a percentage point off economic expansion. Much of the recent growth came from a partial reversal in government outlays.
Additionally, business investment is surging because of an artificial intelligence boom. Excluding housing, business investment surged 10.4 percent in the first quarter. This marks the biggest jump in nearly three years.
From January through March, consumer spending expanded at a 1.6 percent annual pace. Americans were helped by big tax refunds stemming from President Donald Trump's 2025 tax cuts.. However, economists warn that this boost might not last long. Michael Pearce, the chief U.S. economist at Oxford Economics, noted that rising tax refunds were outpacing the increased burden of gasoline spending in March and most of April. With tax refund season winding down and gas prices climbing, the hit to consumer spending is expected to become more evident from May. Joe Brusuelas, chief economist at RSM, downgraded his forecast for U.S. economic growth this year to 1.7 percent from the 2.4 percent he expected earlier due to the adverse supply shock caused by the war.
Labor market data remained strong. The Labor Department reported that the number of Americans applying for unemployment benefits tumbled to the lowest level in more than 50 years. Yet, companies are not necessarily eager to hire much. Job growth has been inconsistent this year, with strong gains in January and March but a weak February where employers slashed 133,000 jobs.
The combination of rising prices and the threat to economic growth has put the Federal Reserve in a bind regarding interest rate decisions. The central bank recently opted for no change as policymakers assess the economic fallout from the conflict. Ultimately, the 21 percent jump in gas prices was the main contributor to the monthly PCE increase, demonstrating how war-driven fuel costs are directly impacting the broader economy.
Sources
Associated Press (AP) (Published: May 1, 2026)
Reuters (Published: April 30, 2026)
Washington Post (Published: April 30, 2026)
The Economic Times (citing Reuters/BEA) (Published: May 1, 2026)
