US inflation increased as expected in March – PCE

The Personal Consumption Expenditures (PCE) price index, a key inflation gauge favored by the Federal Reserve for its 2% target, increased by 0.3% month-over-month in March, matching the previous month’s rate and meeting expectations. Monthly inflation rates around 0.2% are needed over time to bring inflation back to the target.

The annualized PCE price index climbed 2.7% in March, following a 2.5% increase in February and surpassing the consensus estimate of 2.6%.

The moderate rise in US inflation during March is unlikely to change market expectations that the US central bank will delay cutting interest rates until September.

Concerns about higher-than-expected inflation in March arose after the preliminary GDP report for the first quarter indicated that price pressures could escalate in 2024, particularly due to rising costs for services such as transportation, financial services, and insurance. These increases offset the positive effects of declining goods prices.

Fed policymakers are set to meet next week and are widely expected to maintain the current interest rates within the range of 5.25% to 5.50% for the ninth straight month. This follows a 525 basis point increase in borrowing costs since the start of the rate-hiking cycle in March 2022.

Initially, markets anticipated the Fed would initiate its first rate cut in March, but this was pushed back to June and then to September, due to disappointing labor market and inflation data in recent months.