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Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred gauge of inflation, fell to 2.3% in March, the lowest since September 2024 when it hit 2.1%.
The reduction in PCE inflation mirrors the decline in the Consumer Price Index (CPI) for March, which dropped to 2.4% from 2.8% the previous month.
The March decline in the PCE was similar, falling from a revised 2.7% in February to 2.3%. The February PCE was revised up from the initial report of 2.5%.
Over the past 12 months, the price of goods dropped slightly, 0.3%, but the cost of services increased 3.5%.
The 2.3% inflation rate over the past 12 months was slightly higher than the 2.2% that economist had expected. But it moves closer to the Fed’s target of 2.0% annual inflation.
For the month of March alone, the PCE was flat, showing 0.0% growth, in line with estimates. The PCE for goods in March fell 0.5% while it rose 0.2% for services.
Core PCE In Line With Estimates
The core PCE, which excludes food and energy prices, rose 2.6% in March, down from a revised 3.0%. The Bureau of Economic Analysis (BEA) initially reported core PCE at 2.8% for February.
The 2.6% core PCE rate was on par with analysts’ estimates. It saw little change in March, rising less than 0.1%.
Food prices were up 2% year-over-year in March, while energy prices dropped 5% over the past 12 months.
Earlier on Wednesday, the BEA reported that the PCE inflation rate for the first quarter was 3.6%, compared to 2.4% in the previous quarter. The core PCE for Q1 was 3.5%, up from 2.6% the previous quarter.
The report also found that consumer spending increased by $134.5 billion in March, with motor vehicles and parts accounting for $56.6 billion of that total. This could be related to more people buying before the tariffs kicked in.
Will It Move the Needle for the Fed?
In addition, personal income rose 0.5% in March, up from 0.4% in February. Further, disposable personal income also increased 0.5%, up from 0.4% in February.
Finally, the personal savings rate as a percentage of disposable income was 3.9% in March. That’s down slightly from 4.1% in February.
Stocks were down on Wednesday, with the Dow off about 280 points, the S&P 500 down 55 points, and the Nasdaq dropping 248 points.
However, stocks moved noticeably higher after the PCE inflation report came out, perhaps on the hope that the declining PCE inflation rate may spur the Fed to lower interest rates. It should be noted that the March PCE report does not include the impact of the tariffs that went into effect on April 2.
But the CME FedWatch survey of interest rate traders showed that 93.5% still think rates will stay the same after the May 7 FOMC meeting. That’s up from 90.8% just yesterday.