The Federal Reserve’s preferred gauge of underlying U.S. inflation rose sharply in March, increasing concerns about persistent price pressures that are likely to delay interest rate cuts.
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(Bloomberg) — The Federal Reserve’s preferred gauge of underlying U.S. inflation rose sharply in March, increasing concerns about persistent price pressures that are likely to delay interest rate cuts.
The so-called core personal consumption expenditure price index, which excludes the volatile food and energy components, rose 0.3% from a month earlier, data released on Friday showed. Compared to the previous year, it rose by 2.8%.
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The overall PCE price measure also rose 0.3% from February and 2.7% from a year ago.
Inflation-adjusted consumer spending rose 0.5% more than forecast, the biggest increase this year.
Faster inflation in the first quarter combined with stable household spending will likely convince Fed policymakers not to cut interest rates until later this year, if at all. The civil service meeting next week is expected to keep borrowing costs at their highest level in two decades.
“This is both about the economy holding up very well with high interest rates and persistent inflationary pressures,” Bruce Kasman, chief economist at JPMorgan Chase & Co., said on Bloomberg Television. “And while I don’t think it’s right to talk about it from a Fed tightening perspective, I think the case for Fed easing here any time soon is pretty slim.”
Traders reacted mostly positively as investors took relief from monthly inflation data after quarterly numbers on Thursday suggested upside risk for March.
Central bankers are paying close attention to service sector inflation, with the exception of housing and energy inflation, which tend to be more stable. According to the BEA, this metric increased by 0.4% compared to February, an acceleration from the previous month.
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A robust labor market is the main reason why households have not yet slowed down their spending in the face of high interest rates and increased prices.
Consumer spending
Inflation-adjusted spending on goods rose 1.1% last month, reflecting a second straight month of solid spending on durable goods. Meanwhile, spending on services rose slightly by 0.2%.
Demand for labor remains strong and supports wage growth. Total income rose 0.5%, while wages rose 0.7% for a second month. That was the strongest consecutive increase since the beginning of last year.
The savings rate fell to 3.2%, the lowest level since October 2022.
Looking ahead, central bankers are still confident they can bring inflation down to their 2% target without destroying the economy.
A separate report released Thursday showed slower economic growth in the first quarter masked robust household demand and business spending.
– With support from Kristy Scheuble, Daniel Neligh and Christopher Condon.
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