Over the past 12 months, the personal consumption price index has risen by 6.6%, from 6.4% in February, the government announced on Friday. This is the sharpest increase since 1981. However, a narrower measure of inflation that omits volatile food and energy costs, known as the PCE core, rose just 0.3% in March for the second straight month. This is in line with Wall Street forecasts. The increases in the key inflation rate in February and March were the smallest consecutive readings since last summer. In addition, the core inflation rate last year fell to 5.2% from 5.3%, marking the first fall from month to month in more than a year. The Fed considers the PCE index – specifically the key interest rate – to be the most accurate measure of inflation in the US. It is more comprehensive and takes into account when consumers are replacing cheaper products with more expensive ones – say minced meat with minced steak or frozen spinach for fresh. Big picture: Higher inflation since the early 1980s has put more financial pressure on households and businesses. Even though the rate of inflation excluding gas and food has slowed, it offers little convenience to Americans who have to pay more to fill the tank and put dinner on the table. The Fed is moving fast to raise interest rates to try to reduce inflation, but economists say it will take time. Prices have skyrocketed in part due to continuing shortages of basic supplies, such as pandemic-related computer chips. The Fed’s easy money strategy and huge government incentive spending after the outbreak also contributed. Now all this stimulus is gone or gone. However, rising inflation is forcing workers to demand higher wages and businesses to charge higher prices, making it harder for the Fed to reverse the tide. Looking to the future: “The biggest story since today’s data announcements was further evidence that inflation is starting to fall,” said Andrew Hunter, an American economist at Capital Economics. “This will not stop the Fed from raising it by 50 basis points next week, but it supports our view that inflation will fall slightly faster this year than Fed officials now expect,” he added. Market reaction: Dow Jones Industrial Average DJIA, -2.28% and S&P 500 SPX, -3.18% opened lower in Friday trading.
