Consumer prices as measured by Personal Consumption Expenditures rose in April, the highest annual increase in nearly three years.

Iran War Pushed Up The Fed's Favorite Measure Of Inflation In April

Updated May 28, 2026

10:29 AM EDT

Key Takeaways

As widely expected, the PCE price index rose to its highest in nearly three years in April.
PCE inflation rose 3.8% over the year, its highest annual increase since May 2023.
Prices excluding food and energy rose the most since November 2023.
Core PCE inflation is the benchmark the Federal Reserve uses to determine whether inflation is at its 2% annual target.

Surging energy prices due to the Iran war helped push the Federal Reserve's preferred inflation gauge to its highest in nearly three years in April.

Consumer prices as measured by the Personal Consumption Expenditures price index rose 3.8% over 12 months in April, the highest annual inflation since May 2023, the Bureau of Economic Analysis said Thursday.1

That was in line with economists' expectations, though the 0.4% increase in the index from March was slightly below the 0.5% forecast by a survey of economists by Dow Jones Newswires and The Wall Street Journal.2

A 5.5% month-over-month surge in gasoline and other energy prices due to the war in Iran helped push the index higher. However, the jump was less than the 20.9% monthly increase in March.3

"The impact of higher gas prices is still putting pressure on inflation," wrote Michael Pearce, Chief U.S. Economist at Oxford Economics, in a commentary. "We expect inflation to nudge higher in May, but the key for the Federal Reserve is what is happening to underlying inflation."

The core index, which excludes volatile food and energy prices, rose 3.3% over the year, the most since November 2023. Over the month, it grew 0.2%, below the 0.3% forecasters expected.4

What This Means For The Economy

Rising inflation squeezes consumer finances and puts pressure on the Federal Reserve to raise interest rates to counteract it, which can hurt economic growth.

Rising PCE inflation was widely expected after the Consumer Price Index showed a similar trend for April when it was released earlier this month. However, the uptick in core PCE inflation was especially significant. It's the benchmark used by Federal Reserve officials to determine whether inflation is at its 2% annual target, something it hasn't achieved since 2021.

Economists view core prices as a more reliable indicator of the longer-term trajectory of inflation, since food and energy prices can be influenced by factors unrelated to broader inflation trends. Fed officials have become increasingly vocal about the risks of the Iran conflict pushing up inflation, and have raised the possibility of hiking the central bank's benchmark interest rate to counteract it.

Related Education

[ Personal Consumption Expenditures (PCE): A measure of how much U.S. households spend on goods and services.

Personal Consumption Expenditures (PCE): What It Is and Measurement](https://www.investopedia.com/terms/p/pce.asp) [

Consumer Price Index vs. Other Inflation Measures: Which Is Best?](https://www.investopedia.com/ask/answers/012115/consumer-price-index-cpi-best-measure-inflation.asp)

The increase in core prices also showed soaring fuel costs are becoming contagious, affecting prices for other things, as higher transportation costs are passed along to customers.

Those higher prices are causing some strain on household finances. Personal income was flat, less than the 0.4% increase forecasters had expected. Spending rose 0.5%, in line with forecaster expectations, though down from the 1% increase in March that was fueled by tax refunds.

With income stagnant, consumers sacrificed saving to fund their increased spending, as the saving rate fell to 2.6% from 3.2% in March, reaching the lowest since June 2022.5

"The consistent declines in real disposable income growth in recent months and rapid drop in the personal savings rate visible in the April personal income and spending report raise real concerns about the resilience of future consumer spending despite the steady performance over the first two months of the war," wrote Scott Anderson, BMO Capital Markets' Chief U.S. Economist, in a commentary. "Should inflation remain elevated, it will be increasingly difficult for consumers to keep up their current pace."

Update, May 28, 2026: This article has been updated to include commentary from economists.

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