US Annual Core PCE Inflation Falls Below Expectations

Core PCE inflation fell a little more than expected in March, but the Employment Cost Index jumped in Q1. The latest Personal Income and Spending figures for March will instill confidence about the underlying strength of the US economy.

Annual inflation in the US fell to 5.2% in March according to the latest Core PCE Price Index reading released by the US Bureau of Economic Analysis on Friday. That was slightly below median economist forecasts for a reading of 5.3%, while February’s reading was downgraded from 5.4% to 5.3%. MoM, Core PCE Price Index rose at a pace of 0.3% in March, in line with expectations and unchanged from February’s 0.3% rate, which was revised lower from 0.4%.

The Core PCE Price Index is the Fed’s favoured gauge of underlying inflationary pressures in the US economy. The headline PCE Price rose at a pace of 6.6% YoY in March, up from 6.3% a month earlier amid a MoM rise of 0.9%, which comes after February’s 0.6% reading.

Separately, US Personal Income and Spending data for March was also released, with the latter rising 0.5% MoM and the former rising 1.1% MoM. Both of these figures were stronger than the median economist forecast for 0.4% and 0.7% MoM gains respectively. Taken in tandem with the MoM growth in the headline PCE Price Index, real consumption growth was 0.2% MoM in March, up from 0.1% in February.

Employment compensation data for Q1 was also released. The Employment Cost Index rose at a QoQ pace of 1.4% in the first quarter of 2022, above the forecasted gain of 1.1% and above Q4’s 1.0% gain. Employment Benefits rose at a QoQ pace of 1.8% after rising 0.9% in Q4, while Employment Wages rose at a pace of 1.2% after rising at a pace of 1.0% in Q4.

The DXY has not seen a notable reaction to the latest batch of mixed US economic data. Evidence of easing US inflationary pressures as per the latest Core PCE Price Index numbers was negated by a larger than expected rise in the Q1 Employment Cost Index, while the latest Personal Income and Spending figures for March will instill confidence about the underlying strength of the US economy.