The pace of U.S. growth accelerated in the first quarter, rebounding from tepid activity in the prior three-month period due to a government shutdown, while inflation rose in March amid a surge in energy prices stemming from the conflict in Iran. Gross domestic product for the January to March period registered at 2%, an increase from 0.5% in the last quarter of 2026, yet it fell short of economists’ expectations of 2.2%, as indicated by an advance estimate released on Thursday. Analysts have indicated that the GDP data may have been distorted by the fourth quarter, during which growth experienced a significant slowdown due to last year’s 43-day government shutdown, resulting in the largest drop in federal spending since 1972.

In the first quarter, government spending was characterized by an increase in nondefense outlays, primarily driven by federal employee compensation. However, the BEA noted that “the pattern of spending” was affected by the shutdown. The swift proliferation of data centers to facilitate artificial intelligence has contributed to sustaining growth and mitigating a decline in consumer spending, which has diminished since the onset of the Iran war in late February.

Gasoline pump prices have risen to exceed $4 a gallon, indicative of an increase in energy costs following the commencement of the U.S. and Israel’s joint military actions against Iran in late February. The crucial Strait of Hormuz, an essential maritime route located south of Iran, through which approximately 20% of global oil transportation occurs, has effectively been closed for several weeks. “Analysts noted that a further slowdown in consumption is anticipated as consumers contend with elevated gasoline prices.” Nonetheless, certain investors perceive the U.S. economy — a significant energy exporter — as possibly shielded from the energy shock, which has bolstered a surge in demand for the U.S. dollar as a safe haven amid the crisis.

In March, the personal consumption expenditures price index registered a year-on-year increase of 3.5% and a month-on-month rise of 0.9%, both of which exceeded the previous month’s figures and aligned with forecasts. This metric serves as one of the Federal Reserve’s favored indicators for assessing inflationary trends. Excluding food and fuel, the “core” PCE registered a 3.2% increase over the twelve months leading to March, up from 3.0% in February. Core PCE prices for the first quarter increased to 4.3%, in contrast to 2.7% and expectations of 4.1%. Analysts described this reading as “uncomfortably hot.”