In March, inflation remained high, according to PCE price index closely monitored by the Federal Reserve. The PCE price index, which excludes food and energy, rose by 2.8% compared to a year ago and did not change from February. This went over the expected increase of 2.7% projected by economists surveyed by Dow Jones.
The all-items PCE price index gauge, including food and energy, increased by 2.7%, slightly above the estimated 2.6%. Both measures increased by 0.3% monthly, as anticipated, matching the February increase.
PCE Price Index: All About March PCE
The market response was slow, with Wall Street set to open higher. Treasury yields decreased, with the benchmark 10-year note at 4.67%, reduced about 0.4 percentage points for the session. Futures traders became slightly more hopeful about the possibility of two rate cuts this year, increasing the probability to 44%, according to the CME Group’s FedWatch gauge.
George Mateyo, chief investment officer at Key Wealth said that the March PCE price index released this morning was not as alarming as feared. However, investors should not assume that inflation is fully under control and expect immediate interest rate cuts from the Fed. He added that rate cuts are possible, but not guaranteed, and the Fed may wait for labor market weakness before taking action.
Consumers continued spending despite high prices. Personal spending in the March PCE price index increased by 0.8% for the month. This has slightly exceeded the 0.7% estimate and matching February’s figure. Personal income in the March PCE price index increased by 0.5%, meeting expectations and going over the previous month’s 0.3% increase.
More About March PCE
The personal saving rate dropped to 3.2%, down by 0.4 percentage points from February and 2 full percentage points from a year ago in the core PCE report. This advancement in the March PCE price index as households tapped into savings to sustain spending.
The March PCE price index including core PCE report likely solidifies the Fed’s stance on keeping interest rates steady at least until summer. They would only be sure about introducing rate cuts if there is a significant shift in the data. The Commerce Department’s report on Thursday showed that March PCE in the first quarter increased at a 3.4% annualized rate, while GDP increased by just 1.6%. This March PCE price index number goes below Wall Street’s expectations.
Fed officials monitor both the headline and the core PCE report, but they believe that the index excluding food and energy offers a clearer view of longer-term trends due to the volatility of these categories.
In the March PCE price index, prices for services increased by 0.4% from the previous month, while prices for goods increased by 0.1%. This shows a shift in consumer pricing dynamics. Food prices saw a slight decrease of 0.1% for the month, while energy prices increased by 1.2%.
Over a 12-month period, prices for services have increased by 4%, whereas prices for goods have seen minimal change, with just a 0.1% increase. In the core PCE report, food prices have gone up by 1.5%, and energy prices have increased by 2.6%.
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