Inflation in the United States remained high in March, with the Personal Consumption Expenditures price index showing a 2.7% increase for the year. This was above economists’ expectations and higher than the previous month’s reading of 2.5%. Prices for services such as housing, health care, and transportation are contributing to this upward pressure on inflation, according to Commerce Department data. This data was not encouraging for Federal Reserve officials who are hoping for a decrease in inflation. The Fed uses the PCE index to evaluate monetary policy and is closely monitoring shifts in underlying inflation, as shown in the core PCE index which excludes volatile food and energy prices.
Both the overall PCE index and the core PCE index remained above the Fed’s 2% target, with the core PCE index holding steady at 2.8% annually in March. Despite lower readings compared to previous peaks, the Fed has been on hold with rate cuts after a series of high inflation reports at the start of 2024. The confirmation of a persistent inflation trend from the PCE price index suggests that interest rates will remain higher for longer, according to E*Trade’s managing director for trading and investing. Consumer spending continued to be strong, increasing by 0.8% in March, with economists expecting a more modest rise of 0.5%. The economy-powered spending was also up by 0.5% when adjusted for inflation, while inflation-adjusted disposable personal income increased by 0.2%.
Despite the strong consumer spending, savings as a percentage of disposable income declined to 3.2%. The story is still developing, with updates expected in the future. In summary, while inflation remains high in the US, Americans continue to spend at a strong pace. The Federal Reserve is closely monitoring inflation levels using the PCE index and is considering potential rate cuts. Consumer spending remains robust, with inflation-adjusted disposable personal income also showing growth. However, savings as a percentage of disposable income have decreased. Continuing updates on the evolving economic situation in the US are expected.
