U.S. March consumer spending picks up as core inflation cools

UNITED STATES purchases increased 0.9 percent in March. / BLOOMBERG FILE PHOTO/ARIANA LINDQUIST
UNITED STATES purchases increased 0.9 percent in March. / BLOOMBERG FILE PHOTO/ARIANA LINDQUIST

NEW YORK – United States consumer spending rebounded in March while the Federal Reserve’s preferred underlying inflation gauge eased to a one-year low, reinforcing the central bank’s patient stance on interest rates even as the economy’s main engine holds up.

Purchases, which make up more than two-thirds of the economy, rose 0.9% in March from the prior month, topping estimates, while rising 0.1 percent in February, according to a Commerce Department report Monday that combined two months after delays related to the government shutdown. Personal income rose 0.1 percent in March, less than forecast.

Excluding food and energy, the Fed’s preferred core-price gauge was little changed from the previous month, compared with estimates for a 0.1% gain. The measure was up 1.6 percent from a year earlier, the slowest since January 2018 and missing projections. The broader personal consumption expenditures price index rose 0.2 percent in March from the previous month and climbed 1.5 percent from a year earlier, also below forecasts.

The signs of consumer strength follow Friday’s gross domestic product report showing consumer spending, the largest chunk of the economy, cooled in the first quarter to a 1.2% pace of gains. That was offset by boosts from inventories and trade that helped economic growth accelerate to a 3.2 annualized rate.

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The below-forecast price data Monday showed inflation still below the Fed’s 2% goal despite low unemployment and what most economists see as above-average growth. Policy makers on Wednesday are expected to hold interest rates steady, though new growth and inflation data are likely to affect their characterization of the economy.

Inflation target

A broader question for the Fed and Chairman Jerome Powell – who holds a press conference Wednesday – is how low core inflation could go before the central bank cuts interest rates to maintain the credibility of the 2% goal for price gains. President Donald Trump has cited muted inflation as a reason for the Fed to ease monetary policy to keep economic growth strong.

The forecasts in Bloomberg survey had called for March spending to increase 0.7% with incomes up 0.4%. Economists had forecast the annual inflation gauge would climb 1.6% while the core measure advanced 1.7%.

Monday’s Commerce Department release included personal spending data for both February and March. The earlier data were delayed because of the federal government shutdown that ended in January. The latest figures reflect a monthly breakdown of data already included in Friday’s GDP report.

While the main personal-income figure missed forecasts, wage and salary gains remained solid with a 0.4% monthly rise in March following a 0.3% increase in February. Lower interest income and farm payments dragged down the headline number, the Commerce Department said.

Reade Pickert and Jeff Kearns are reporters for Bloomberg News.