In New York City, the all-items PCE price gauge rose by 2.7%, slightly higher than the estimated 2.6%. This increase includes food and energy costs. On a monthly basis, both measures saw a 0.3% increase, in line with expectations and equal to the rise seen in February.
Despite the rise in prices, consumers demonstrated resilience in their spending habits. Personal spending increased by 0.8% during the month, exceeding the estimated 0.7%. Personal income also saw a boost, rising by 0.5%, meeting expectations and surpassing the previous month’s 0.3% increase.
The data did not have a significant impact on the markets, as Wall Street remained poised for a higher opening. Treasury yields fell, with the benchmark 10-year note at 4.67%, down about 0.4 percentage points for the session. Futures traders showed increased optimism about possible rate cuts, raising the probability to 44%, according to the CME Group’s FedWatch gauge.
Chief Investment Officer George Mateyo cautioned against being overly confident in the idea that inflation has been completely resolved, stating that rate cuts are not guaranteed. He mentioned that the Fed may need to see weakness in the labor market before considering cutting interest rates.
The personal saving rate dropped to 3.2%, a decrease of 0.4 percentage points from February. This decrease indicates that households are dipping into their savings to sustain their spending amid rising prices.
Following concerning inflation news from Thursday, the report likely solidifies the Fed’s decision to maintain interest rates, at least through the summer, unless significant changes occur in the data. Central bank policymakers are closely monitoring inflation trends as they contemplate future monetary policy decisions.
The Fed has been aiming for 2% inflation, a target that the core PCE has exceeded for the past three years. By focusing on the PCE, the Fed can better assess long-term trends, as this metric adjusts for changes in consumer behavior and places less emphasis on housing costs compared to the consumer price index from the Labor Department. Services prices increased by 0.4% during the month, while goods saw a 0.1% increase. Food prices experienced a slight decline of 0.1%, while energy prices rose by 1.2%.
Looking at a 12-month timeframe, services prices have increased by 4%, while goods have only seen a marginal 0.1% increase. Food prices have risen by 1.5%, and energy prices by 2.6%. These trends reflect a shift in consumer pricing dynamics, with goods inflation dominating early in the Covid pandemic. While the Fed considers both headline and core measures, they place more weight on the ex-food and energy figure for a better understanding of long-term trends.