Report: Energy Prices Hikes Exacerbate Broader Inflation Problem

Inflation doubled in March as energy prices and nominal spending increased, according to two economists from Florida Atlantic University.

The Personal Consumption Expenditures Price Index (PCEPI), the Federal Reserve’s preferred measure of inflation, grew at an annualized rate of 8.3% in March, up from 4.6% in February.

Over the past year, inflation has run at 3.5%, much higher than the Fed’s 2% target.

“Inflation is high for two distinct reasons: the ongoing conflict in the Middle East, which disproportionately affects energy prices, and broader inflationary pressures related to excess nominal spending,” said William Luther, Ph.D., associate professor of economics in FAU’s College of Business.

The price index for energy goods and services grew 11.6% in March – or 271.8% annualized. The price of energy has grown 14.4% over the last year.

Nominal spending, the total amount of money consumers are spending across the economy, surged in early 2026. Nominal spending grew at an annualized rate of 5.6% in early 2026, about 1.1 percentage points faster than what would be consistent with the Fed’s inflation target. For comparison, nominal spending grew at an average annualized rate of 4.1% over the five years just prior to the pandemic. 

“The surge in the price levels for energy good and services tied to the Iran conflict’s effect on oil markets also played a key role in inflation,” said Eric Van Tassel, Ph.D., associate professor of economics in FAU’s College of Business. “The data leaves the Fed without much support for cutting interest rates anytime soon and instead reinforces the case for keeping rates elevated until inflation shows a convincing move back toward the 2% target.”

-FAU-