Since the commencement of the U.S. and Iran war, energy prices have soared, and the latest findings from the Bureau of Economic Analysis’ Personal Consumption Expenditure (PCE) index (the Federal Reserve’s preferred measure of inflation) found that catching up.
The PCE price index experienced a large bump in March 2026; after hovering around 2.9% annual inflation since December 2025, in March it ran up to 3.5%, a month-over-month increase of 0.7%. Annual core inflation measured by the PCE index, excluding food and energy costs, was 3.2%, a 0.3% monthly increase. This marks the highest inflation seen on the index in almost three years.
The war also pushed mortgage rates up almost 50 basis points in the span of a little over a month. Though rates have since moderated somewhat, housing economists have continued to warn the conflict and related fallout is likely to put upward pressure on rates.
The other side of the PCE report focuses on incomes and expenditures, rather than price. According to the latest data, personal income increased by $149.2 billion, while personal consumption expenditures increased by $195.4 billion. Consumer spending on gasoline and energy goods was (unsurprisingly) the highest growing expenditure category by far, increasing by $81.3 billion, compared to the second-highest section (healthcare) increasing by $21.3 billion. Spending on housing came in at a low increase of about $500 million.
At the latest Federal Open Market Committee (FOMC) meeting, held the day before the release of the PCE index, the Federal Reserve chose to once again hold interest rates steady; the board last voted to lower interest rates in December 2025. Fed Governor Stephen Miran (appointed by President Donald Trump) dissented in favor of a quarter-point rate cut. Four other governors also dissented from language suggesting the next move is more likely to be a cut than a hike.
Recent FOMC meetings have shown a Fed divided on concerns over increasing inflation and a soft labor market; keeping interest rates unchanged has been part of a wait-and-see approach on the economic impact. Kevin Warsh, nominated by Trump to succeed Fed Chair Jerome Powell (whose term ends in May), has indicated support for lower interest rates in past comments but denied he colluded with the President toward this goal.
