US Core PCE Rises by 3.2% YoY in March, Biggest Increase in Three Years

The Federal Reserve's preferred inflation gauge - core PCE (Personal Consumption Expenditures Price Index) - rose 0.3% month-on-month in January, in line with expectations, retreating from February's 0.4%; it increased 3.2% year-on-year, also in line with expectations, slightly above February's 3.0%, and the year-on-year figure is the highest increase since November 2023.

Including non-core items such as energy and food, the overall PCE increase is more significant, with a month-on-month rise of 0.7% (as expected), driving the year-on-year increase to 3.5% (also as expected), higher than the previous 2.8%, and hitting a new high since May 2023.

Upon closer examination of the overall data, there was a substantial rise in the prices of non-durable goods, primarily due to soaring gasoline prices.

On the other hand, core PCE is much more moderate, with the monthly increase actually being the lowest in three months, although the year-on-year increase is still climbing.

Lastly, the super-core PCE also shows moderation, indicating that the spillover effects of energy prices to the overall economy are occurring, but not as rapidly as some people feared.

For those concerned about the impact from the recent surge in crude oil prices, it appears that the energy component in PCE has already absorbed most of the increase in advance.

While prices are rising, income and spending are also increasing, with personal income increasing 0.6% month-on-month, twice the expected 0.3%, and significantly rebounding from the previous month's 0.0%. Meanwhile, spending increased 0.9% month-on-month, in line with expectations, and higher than the previous month's 0.6%.

A cause for concern is that the pace of spending continues to outpace income growth.

With spending surpassing income once again (wage growth not keeping up with income growth), the savings rate has slightly declined, hitting a four-year low.

Amidst the continuous collapse of expectations for rate cuts, this latest set of data will not provide any support for the Federal Reserve to take a dovish stance.