What to Expect from Looming PCE Report?

March is likely to see the Fed’s Personal Consumption Expenditures (PCE) index stay stubbornly high, since inflation has exceeded forecasts in every month this year but one.

This further complicates forecasting. Fed officials have stated that before the central bank lowers interest rates, they need further assurance that inflation is under control.

The PCE index, which measures living expenses, is predicted to have increased by 2.6% over the course of the year ending in March. This is an increase from the 2.5% annual rate that was reported in February and remains higher than the 2% rate that Federal Reserve policymakers target when determining the country’s monetary policy.

But there were indications in Thursday’s Gross Domestic Product (GDP) data that the inflation figure for March would be higher than analysts had predicted. From 1.8% in the fourth quarter of 2023 to an annualized rate of 3.4% in the first quarter, inflation increased during that entire period.

This graph includes inflation statistics from March (which won’t be available until tomorrow) as well as from January and February, which are already available to the public.

Core inflation, which does not include volatile food and energy prices, is predicted by economists to have decreased from 2.8% in February to 2.7%. Because core PCE is unaffected by external factors, such as weather, which can affect the price of food and oil but is not related to broader inflation patterns, policymakers at the Fed regularly monitor core PCE as a measure of the trajectory of inflation.

The first three months of this year have seen a terrible habit of inflation figures that are higher than anticipated. If that pattern persists, Federal Reserve authorities may decide to maintain higher interest rates for extended periods of time in an effort to reduce inflation by raising the cost of all loans and slowing down the economy.