Inflation rebounded in March in the United States, according to the PCE index, favored by the US central bank and published a few days before its next meeting, which should encourage it to remain cautious before starting to reduce rates. Inflation accelerated to 2.7% year-on-year in March, from 2.5% in February, according to the PCE index released by the Commerce Department. Analysts had expected a more modest figure of 2.6%. Over the month, however, inflation remained stable, as expected, at 0.3%.
Even the so-called core inflation (‘core’), which excludes the volatile prices of food and energy, remained stable at 0.3% on a quarterly basis and at 2.8% on a trend basis, above the estimates that pointed to +2 ,7%. Household incomes recorded stronger growth in March than in February, with an increase of 0.5% compared to 0.3%. But the increase in spending remained unchanged, with a +0.8% on the month. These data signal “that the economy continues to expand and that inflation is high,” commented Rubeela Farooqi, chief economist at High Frequency Economics.
The PCE inflation index is the indicator that the Federal Reserve aims to bring down to 2%. This rebound should encourage the Fed to be patient and keep rates at the current level of 5.25-5.50%, the highest in over 20 years, “for longer”, to avoid seeing prices rise again , adds the economist.
Another measure of inflation, the CPI, on which pensions in the United States are indexed, also continued to accelerate last month, reaching 3.5% year-on-year.
This led Fed Chair Jerome Powell to warn that it will likely take “longer than expected” to have confidence in a sustainable return of inflation to the 2% target. Markets, which only a few weeks ago were counting on a first rate cut in June, now expect it in September or even November, according to estimates from the CME Group. Especially since the job market remains lively and the unemployment rate is very low, equal to 3.8% in March. The Fed meets Tuesday and Wednesday, and analysts will be watching for any indication of its intentions.
One data, however, showed Thursday that the Fed’s efforts to reduce inflation are not in vain: first-quarter economic growth, which slowed sharply. With an annualized rate of 1.6%, compared to 3.4% in the fourth quarter of 2023, GDP fell to its lowest level in almost two years, after a 2023 that had exceeded all expectations. This could help tip the Fed’s balance in the opposite direction, convincing it not to wait too long before starting to reduce rates. Because if it acts too late, the economy and therefore employment could suffer.