PCE Inflation Climbed Higher in March

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Man paying with credit card | Image by JulPo/Getty Images

The Federal Reserve’s preferred inflation gauge climbed higher in March, complicating the U.S. Central Bank’s timeline for 2024 rate cuts.

The Personal Consumption Expenditure (PCE) price index, a closely watched inflation measure, advanced 0.3% from February and 2.7% for the last 12 months ending in March, according to the latest report from the U.S. Department of Commerce’s Bureau of Economic Analysis.

Analysts had forecasted an annualized reading of 2.6%, slightly below the actual results for the month.

Data shows that annual core PCE prices, which remove the volatile food and energy categories, were unchanged from February at 2.8%. Overall, the monthly core PCE rose 0.3% in March, which is the same reading as in February and also in line with expectations for the period.

According to Ben Ayers, senior economist at Nationwide Insurance, inflation continues to be an obstacle for policymakers considering their ideal scenario for a soft landing.

“We’re moving in the wrong direction, again, on the inflation story,” Ayers told CNN in an interview. “Those [price increases for services] don’t go away overnight, and I think that’s the concerning part for us as economists, but also for the Fed.”

With inflation moving in the opposite direction of the Fed’s 2.0% target, Ayers suggested the country’s high inflationary environment will likely stick around longer than forecasters anticipate.

Friday’s PCE report follows weaker-than-expected GDP data that shows the U.S. economy expanded at its slowest pace since the two-quarter contraction in 2022.

Despite PCE prices edging higher in March, Key Wealth chief investment officer George Mateyo suggests the data was not as alarming as previous inflation reports in 2024.

“Inflation reports released this morning were not as hot as feared, but investors should not get overly anchored to the idea that inflation has been completely cured and the Fed will be cutting interest rates in the near term,” Mateyo said, per CNBC. “The prospects of rate cuts remain, but they are not assured, and the Fed will likely need weakness in the labor market before they have the confidence to cut.”

Fed policymakers have three more Federal Open Market Committee meetings scheduled for this year. While markets initially priced in the first rate cut to occur at the policy meeting in May, the resurgence in inflation throughout the first quarter of 2024 has pushed the probability of a 25 basis-point rate cut to either September or December.

“Fed officials have continued to stress the need for further progress toward their goal of an average 2% pace of inflation before interest rate cuts will be appropriate,” PNC senior economist Kurt Rankin wrote in a research note to clients in March. “So far, 2024 has brought disappointing evidence to those looking for hope that the Fed is ready to cut rates.”

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