In this morning’s data, the PCE Deflator increased 0.3% in March, as expected and was up 2.7% on an annual basis, two tenths higher than the previous reading. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased 0.3% in March, also as expected. Core rates grew 2.8% on an annual basis, which is the same as the previous month.
In addition, Personal Income grew 0.5% in March, as expected, and is two tenths more than the increase in the previous month. Personal Spending grew 0.8% in March, more than expected and the same as the increase the previous month. Real Personal Spending, which accounts for inflation, increased 0.5% in March, the same as the previous month’s revised figure and the personal savings rate as a percentage of disposable income was 3.2%.
Overall, headline and core inflation measures increased again in March. Inflation is proving sticky, with the core rate’s annualized figure holding steady from the previous month and remaining above the Federal Reserve’s 2% target. Coupled with yesterday’s weaker than expected GDP growth figure of 1.6% annualized for the first quarter, it creates a situation where the Fed may need to keep rates higher for longer to combat inflation, even if economic growth wanes. However, both income and spending continue to grow which is a decent sign for consumer spending. How well consumers hold up amidst inflation pressures and Federal Reserve policy will be a key theme for the markets and the economy in the coming weeks.
In all, the yield on the 10-year US Treasury ticks lower following the report and equity futures are higher as we head into the market open.
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