Including food and energy, the PCE price measure for all items rose 2.7%, compared to estimates of 2.6%.
On a monthly basis, both metrics rose 0.3%, as expected and equal to the increase from February.
Markets showed little reaction to the data, with Wall Street poised to open higher. Treasury yields fell, with the benchmark 10-year bond at 4.67%, down about 0.4 percentage points during the session. Futures traders are becoming a little more optimistic about two potential interest rate cuts this year, raising the probability to 44%, according to CME Group's FedWatch gauge.
“This morning's inflation reports were not as hot as feared, but investors should not get too hung up on the idea that inflation has been fully addressed and the Fed will cut interest rates in the near term,” said George Mathieu, chief investment officer. Employee at KeyWealth. “The prospects for a rate cut remain, but are uncertain, and the Fed will likely need weakness in the labor market before it has the confidence to cut rates.”
Consumers showed that they are still spending despite rising price levels. Personal spending rose 0.8% month over month, slightly higher than even the 0.7% estimate although the same level as February. Personal income rose 0.5%, in line with expectations and higher than the 0.3% increase in the previous month.
The personal savings rate fell to 3.2%, down 0.4 percentage points from February and a full 2 percentage points from a year ago, as households turned to their savings to keep up spending.
The report follows bad inflation news from Thursday, and will likely prevent the Fed from maintaining its likely interest rate line through at least the summer unless there is some fundamental change in the data. The Commerce Department reported Thursday that personal consumption expenditures in the first quarter accelerated at a 3.4% annual rate while gross domestic product increased just 1.6%, well below Wall Street expectations.
As inflation continues to spread two years after it began its initial rise to the highest level in more than 40 years, central bank policymakers are watching the data more carefully as they consider their next monetary policy moves.
The Fed is targeting an inflation rate of 2%, the level that core personal consumption expenditures have exceeded over the past three years.
The Fed watches the PCE index in particular because it adjusts to changes in consumer behavior and places less weight on housing costs than the more widely traded Consumer Price Index from the Department of Labor.
While they monitor both headline and core measures, Fed officials believe previous food and energy numbers provide a better look at longer-term trends as those two categories tend to be more volatile.
Services prices rose 0.4% on a monthly basis while goods rose 0.1%, reflecting a decline in consumer prices as goods inflation has dominated since the early days of the Covid pandemic. Food prices showed a decline of 0.1% month-on-month while energy prices rose by 1.2%.
On a 12-month basis, services prices rose 4% while goods moved only 0.1%. Food prices rose 1.5% while energy prices rose 2.6%.
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