Inflation showed little sign of slowing in March, with a key barometer the Federal Reserve monitors closely showing price pressures remain elevated.
The price index for personal consumption expenditures excluding food and energy increased 2.8% year-on-year in March, the same as in February, the Commerce Department reported Friday. That was above the Dow Jones consensus estimate of 2.7%.
Including food and energy, the PCE price indicator for all items increased by 2.7%, compared to an estimated 2.6%.
On a monthly basis, both measures rose 0.3%, as expected and matching February's increase.
Markets showed little reaction to the data, with Wall Street poised to open higher. Treasury yields fell, with the benchmark 10-year at 4.67%, down about 0.4 percentage points during the session. Futures traders became slightly more optimistic about two potential rate cuts this year, increasing the probability to 44%, according to CME Group's FedWatch indicator.
“Inflation reports released this morning weren't as hot as feared, but investors shouldn't get too hung up on the idea that inflation has been completely cured and the Fed will cut its short-term interest rates,” said Fed Managing Director George Mateyo. investment manager at Key Wealth. “The prospects for rate cuts remain, but they are not assured, and the Fed will likely need labor market weakness before it has the confidence to cut rates.”
Consumers have shown that they continue to spend despite high price levels. Personal spending rose 0.8% for the month, slightly higher than the 0.7% estimate, but the same as in February. Personal income rose 0.5%, in line with expectations and above the previous month's 0.3% increase.
The personal savings rate fell to 3.2%, down 0.4 percentage points from February and 2 percentage points from last year, as households dipped into their savings to maintain their expenses afloat.
The report follows bad inflation news from Thursday and that will likely force the Fed to stay the course on interest rates at least through the summer, unless there is a substantial change in the data. The Commerce Department reported Thursday that first-quarter PCE accelerated to an annualized rate of 3.4% while gross domestic product grew only 1.6%, well below Wall's expectations. Street.
As inflation continues to creep in two years after beginning its first climb to its highest level in more than 40 years, central bank policymakers are watching the data even more closely as they consider next policy moves monetary.
The Fed is targeting 2% inflation, a level that core PCE has exceeded for the past three years.
The Fed particularly monitors the PCE because it adjusts for changes in consumer behavior and places less weight on housing costs than the Labor Department's more widely distributed Consumer Price Index.
While monitoring both aggregate and fundamental measures, Fed officials believe the index excluding food and energy provides a better overview of long-term trends because those two categories tend to be more volatile.
Prices for services rose 0.4% on the month while goods rose 0.1%, reflecting a fluctuation in consumer prices as goods inflation dominated since the early days of the pandemic. Covid. Prices of food products fell by 0.1% over the month while those of energy increased by 1.2%.
Over 12 months, prices for services rose 4% while goods barely budged, increasing just 0.1%. Food is up 1.5% while energy gained 2.6%.