Fed’s Preferred Inflation Gauge Show Prices Rising Sharply

The Federal Reserve’s preferred measure of inflation showed prices rose sharply again in March, confirming that progress on bringing inflation down to the Fed’s two percent target has stalled.

The personal consumption expenditure price index rose 0.3 percent in March, the Department of Commerce said Friday. Compared with a year ago, the index is up 2.7 percent, slightly above the 2.6 percent forecast by Wall Street.

Core PCE inflation, which strips out food and energy prices, also rose 0.3 percent from February to March. Over the past 12 months, the core PCE index is up 2.8 percent, a tick above the 2.7 percent expected.

In addition to the March figures, the release from Commerce’s Bureau of Economic Analysis also included upward revisions to January and February’s estimates. January’s figure was revised to show a 0.423 percent rise, up from the 0.377 percent reported earlier. The February revision was revised to show inflation rising 0.338 percent from 0.333 percent.

The core figure for January was revised up to 0.502 percent from 0.452 percent and the February figure was revised up slightly to 0.266 percent from 0.261 percent.

Fed officials have said they pay close attention to the moving averages of inflation over several months, believing this shows underlying trends for inflation. The three-month annualized pace of inflation through March is 4.4 percent, a big jump from the 3.4 percent in the unrevised three-month data through February. The six month remains steady at 2.5 percent.

The three-month annualized core inflation figure also rose to 4.4 percent, up from 3.5 percent according to the unrevised data through February.

Although there have been complaints that rents and the home-owner’s equivalent are artificially driving up inflation figures, a measure of services inflation excluding energy and shelter also shows prices rising sharply. Three-month annualized core services excluding shelter is up 5.5 percent, an increase from the 4.5 percent recorded a month ago.

Several Fed officials have noted the importance of watching this “super-core” measure of inflation.

The acceleration of inflation in recent months has caused the market to reconsider expectations that the Fed will cut several times this year. Current bond and swaps prices indicate that the Fed is likely to cut only one time this year, probably not until the fourth quarter.