By Nicole Goodkind

Inflation was already running above the Federal Reserve's target when the Iran war sent oil prices soaring in late February. Key economic data coming Thursday will be the first to capture a full month of that damage to the Fed's preferred inflation gauge.

Economists expect the personal consumption expenditures, or PCE, price index to climb to 3.6% annually and 0.63% month-over-month, up sharply from 2.8% and 0.38% in February. Core PCE, which excludes volatile food and energy, rose 0.25% in March from the prior month and 3.2% from a year earlier, according to FactSet estimates.

The Fed maintains a 2% inflation goal.

The March consumer price index report, released earlier this month, offered an early read on what's coming. Headline consumer prices rose 3.3% annually, with energy accounting for the bulk of the increase. Core CPI, at 2.6%, was more contained. PCE tends to run higher on core than CPI, which explains the gap in Thursday's forecasts.

Investors will likely look under the hood to see what the report says about inflation contributors that have little to do with the war. Annual core PCE at 3.2% in March would mark an increase from February's 3% pace and extend a stretch of sticky underlying inflation that predates the ongoing conflict in the Middle East. The Fed has struggled to make meaningful progress toward its 2% target for the past five uears.

The Fed held interest rates steady on Wednesday for the third straight meeting. Most officials believe the energy shock will prove temporary, but the concern is that another supply disruption -- on top of lingering tariff pressure -- makes inflation harder to read and resolve.

Research from the Federal Reserve Bank of Dallas estimates the Iran war could add more than half a percentage point to headline inflation this year, with a smaller but still significant effect on the core reading.

The next Fed meeting isn't until mid-June, and more inflation data will be released before then.

Kevin Warsh, a Fed dove, is expected to preside over that meeting as the 17th chair of the central bank. In a Senate hearing last week, Warsh said that he had interest in judging inflation by trimmed-mean measures -- which strip out outliers among measured categories of goods and services. Taking that approach, core PCE inflation would be running closer to 2.3% than 3%.

The March PCE report is due at 8:30 a.m. Eastern time Thursday.

Write to Nicole Goodkind at nicole.goodkind@barrons.com

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April 29, 2026 17:00 ET (21:00 GMT)

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