In March, the Fed’s preferred inflation measure indicates that price increases remained stubborn

The latest reading of the Fed’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) index, has shown a higher-than-expected increase in prices in March. The index, which excludes food and energy costs and is closely monitored by the Federal Reserve, rose 2.8% over the previous year, surpassing estimates of 2.7% and remaining unchanged from the February increase.

This concerning trend has raised alarms among economists, with Nationwide senior economist Ben Ayers noting that the annualized pace of core PCE growth for the first three months of the year stood at 4.4%. Ayers emphasized that the hot inflation readings in March should rule out any rate cuts in the first half of 2024.

Federal Reserve Chair Jerome Powell has reiterated that the central bank will not consider cutting rates until there is greater confidence in inflation’s decline. However, recent data releases have not instilled that confidence, leading to a shift in investors’ expectations for interest rate cuts this year.

The latest data release follows a surprising report from the Bureau of Economic Analysis, which showed a 3.7% year-over-year increase in “core” inflation for the first quarter, exceeding estimates and significantly higher than the previous quarter’s 2% gain. This unexpected rise in inflation has spooked investors, causing Treasury yields to spike and stocks to decline.

Despite the concerns raised by the inflation data, there was some relief for investors in the form of a revision to January’s inflation figures, which showed a higher-than-initially-reported increase. This revision indicates that the elevated inflation levels in the first quarter were largely driven by earlier months rather than later in the period.