Core inflation rate hit 3.2% in March as first-quarter growth disappointed at 2%

Consumers faced escalating prices in March as the Iran war sent oil soaring and created a new level of challenges for the Federal Reserve, according to a batch of reports Thursday that showed economic growth slower than expected and a generational low in layoffs.

The core personal consumption expenditures price index, which excludes food and energy, accelerated a seasonally adjusted 0.3% for the month, pushing the 12-month inflation rate to 3.2%, the Commerce Department reported Thursday. The readings matched the Dow Jones consensus estimates. Core inflation hit its highest level since November 2023.

Including the volatile gas and groceries components saw higher readings, with the monthly gain at 0.7% and the annual rate hitting 3.5%, also in line with forecasts.

In other economic news Thursday, the Commerce Department reported that gross domestic product grew at a 2% seasonally adjusted annualized pace in the first quarter, up from 0.5% in the fourth quarter of 2025 but lower than the 2.2% estimate. The modest growth rate came despite a seeming surge in spending on artificial intelligence and what should have been a boost from the end of last year’s government shutdown.

Also, the Labor Department reported that initial jobless claims totaled a seasonally adjusted 189,000 for the week ending April 25, a decline of 26,000 from the prior week and well below the 212,000 estimate. It was the lowest reading since September 1969 for a labor market that has been in a low-hire low-fire mode for most 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 on fire. Meanwhile, middle and moderate income households are struggling with high gas prices and inflation that’s back at the hottest level in three years.”

The data comes a day after the Federal Open Market Committee, the central bank’s rate-setting arm, voted to hold interest rates steady again. The vote came with four dissents, however, reflecting disagreements within the Fed over the proper setting of monetary policy and how to react to economic cross currents that include inflation above target now for five years running and a stabilizing labor market.

Three regional presidents were among the four votes against the post-meeting FOMC statement. They objected to phrasing that implied the next move for rates would be lower.

The inflation report indicated that the bulk of the price pressure came from goods, which rose 1.4%, boosted by an 11.6% surge in energy goods and services. Services prices overall rose 0.3%.

The rise in energy prices appeared to cut into inflation-adjusted consumer spending.

According to the GDP tally, personal spending increased just 1.6% for the month as outlays for goods decreased 0.1%. Real final sales to private domestic purchasers, a more detailed yardstick for consumer demand, accelerated 2.5%. Spending had a tail in the first quarter: personal consumption expenditures jumped 0.9% in March, pushed by leaping prices at the pump, which are now above $4 a gallon.

A 4.4% increase in government spending, including a 9.3% rise at the federal level, also contributed to the quarterly gains.