Inflation ticked higher in March as incomes, spending rose

Inflation picked up slightly in March as Americans saw their paychecks rise and kept up a sturdy pace of spending, according to data released Friday by the Commerce Department.

The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose 0.3 percent in March and 2.7 percent over the past year. The monthly inflation rate held firm, as economists expected, while the annual inflation rate ticked 0.1 percentage point higher than predicted by experts.

The slight bump in inflation came as consumer spending rose 0.8 percent in March — 0.5 percent when adjusted for inflation — for the second consecutive month. Disposable incomes also rose by 0.5 percent and 0.2 percent when adjusted for inflation in March. Last month was the first time Americans had more money to spend after inflation and taxes since December.

The March inflation report will likely keep the Fed on track to maintain its baseline interest rate range of 5.25 percent to 5.5 percent at its policy meeting next week.

Despite projecting a series of rate cuts at the end of 2023, Fed officials have held off on easing rates after a string of strong economic data to start 2024. Job growth has exceeded expectations for four straight months, and the jobless rate has remained below 4 percent for the longest stretch since the late 1960s.

Inflation has also ticked higher throughout the year as measured by the PCE price index and the more prominent consumer price index published by the Labor Department.

While the U.S. economy grew at a slower rate than expected during the first quarter, that will be unlikely to move the Fed toward easing rates with inflation still 0.7 percentage points above their annual target.