Fed's Key Inflation Gauge Rose 0.3% in March

The Federal Reserve watches economic data closely, and inflation rose again in March despite a year of interest rate increases.

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There was an increase in the personal consumption expenditures price index excluding food and energy by 0.3% for the month, which is in line with the Dow Jones estimate for the month. Compared with February's figure, the core PCE rose 4.6% on an annualized basis, slightly more than the 4% expected and down 0.1 percentage points from last month's figure.

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With the volatile food and energy components included, headline PCE increased just 0.1% for the month, equating to a 4.2% growth on a year-over-year basis, down sharply from February's 5.1% growth. The measure peaked at around 7% in June 2022, the highest level since December 1981, when the economy was at its peak.

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In spite of the weak headline number, the core number remained more positive due to a 3.7% decline in energy prices and a 0.2% decrease in food prices. Prices for goods fell by 0.2%, while prices for services grew by 0.2%.

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One of the key inflation indicators for the Fed is the employment cost index, which showed an increase of 1.2% in the first quarter, higher than the estimate of 1%.

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Consumers continued to spend despite inflationary pressures, which was reflected in their willingness to keep spending throughout the year. Consumer spending remained flat for the month, as expected, as personal income rose 0.3% for the month.

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The rates of inflation are still well above the central bank's 2% target for the year and further evidence that price increases are proving to be more stubborn than policymakers had expected, even though they are below the peaks reached in 2022.

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The Federal Reserve has raised its benchmark interest rate nine times since March 2022 for a total increase of 4.75 percentage points. It is widely expected by the markets that the Federal Open Market Committee, which sets the interest rate, will approve another quarter percentage point increase at next week's meeting before the committee pivots to examine the impact of the tightening of policy on the $26.5 trillion U.S. economy.