Consumers faced higher prices in March, economic growth was slower than expected and layoffs were at a generational low, a series of reports on Thursday showed, as the Iran war sent oil prices soaring and created a new level of challenge for the Federal Reserve.
The core personal consumption expenditure price index, which excludes food and energy, increased by a seasonally adjusted 0.3% in the month, bringing the 12-month inflation rate to 3.2%, the Commerce Department said Thursday. This reading was in line with the Dow Jones consensus forecast. The core inflation rate was the highest since November 2023.
Including the volatile gas and food components increased the reading even further, reaching a monthly increase of 0.7% and an annual rate of 3.5%, also in line with expectations.
In other economic news Thursday, the Commerce Department reported that gross domestic product (GDP) grew at a seasonally adjusted annualized pace of 2% in the first quarter, up from 0.5% in the fourth quarter of 2025, but below expectations of 2.2%. Spending on artificial intelligence appeared to be surging, with growth slowing despite what was supposed to be a boost from the end of the government shutdown late last year.
The Labor Department also reported that new jobless claims for the week ending April 25 were a seasonally adjusted 189,000, down 26,000 from the previous week and well below the expected 212,000. This was the lowest reading since September 1969 for a labor market that has seen few jobs and few layoffs for much of the past year.
“This is a split-screen economy,” said Heather Long, chief economist at Navy Federal Credit Union. “Companies and investors involved in AI are furious, while middle- and middle-income households are struggling with soaring gas prices and inflation that is back to its highest level in three years.”
The statistics were released a day after the central bank’s rate-setting arm, the Federal Open Market Committee, voted to keep interest rates on hold again. But the vote had four dissenting opinions, reflecting disagreements within the Fed over the appropriate setting of monetary policy and how to respond to cross-currents in the economy, including inflation that has been above target for five consecutive years and stabilization of the labor market.
Three regional presidents were among the four who voted against the FOMC statement after the meeting. They objected to language suggesting further rate cuts.
According to the inflation report, most of the upward price pressure came from commodities, with commodity prices rising 1.4%, driven by an 11.6% rise in energy goods and services. Overall service prices increased by 0.3%.
Rising energy prices appear to have reduced consumer spending after adjusting for inflation.
According to the GDP data, personal spending increased by only 1.6% in the same month, while spending on goods fell by 0.1%. Real final sales to domestic retail buyers, a more detailed measure of consumer demand, accelerated by 2.5%. Consumer spending rose 0.9% in March, driven by higher prices, which are now above $4 a gallon, after a dip in spending in the first quarter.
A 4.4% increase in government spending, including a 9.3% increase at the federal level, also contributed to the increase in quarterly profits.
