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Inflation in the United States reached 2.7 percent in the year ended in March, according to the measure used by the Federal Reserve to set its target for price pressures.
Friday’s data on personal consumption expenditures beat economists’ expectations for a slight increase to 2.6 percent from 2.5 percent in February.
Core PCE, the Federal Reserve’s preferred measure of underlying price pressures, remained at 2.8 percent, compared with an expected decline to 2.7 percent.
The figures come a day after first-quarter U.S. inflation and growth data previewed March PCE figures, prompting investors to push back against expectations of an interest rate cut by the Fed.
Friday’s data initially provoked less market reaction, in part because March’s data only slightly beat economists’ expectations. The figures for January and February have been revised upwards.
“The last three months of U.S. inflation really jumped and hit the Fed in the face,” said Ajay Rajadhyaksha, global president of research at Barclays.
But he added that, given the previous day’s first-quarter figures, which roiled markets, Friday’s PCE data “was about as good as the market could have hoped for”, but not “a good figure in absolute terms.
Rajadhyaksha said Thursday’s inflation figure had been relatively high due to upward revisions in January and February – a preferable scenario to the price pressures that accelerated further in March.
Futures traders are now only fully integrating the quarter-point reduction decided by the Fed meeting on November 6 and 7, just after the presidential election. The move is a blow to US President Joe Biden, who is struggling to convince voters he can bring down inflation.
US stocks rose after the opening bell in New York on Friday, with the S&P 500 rising 0.5 percent in early trading..
Government bond yields fell slightly, reflecting rising prices. The policy-sensitive two-year yield slipped 0.02 percentage points to 4.98 percent, while the benchmark 10-year yield fell 0.05 percentage points to 4.66 percent. .
US borrowing costs are currently at their highest level in 23 years, while the PCE index has been above the central bank’s 2% target since March 2021.
“We’re probably going to have persistent inflation from here on out,” said Tim Murray, multi-asset strategist at T Rowe Price. He argued that pricing pressures were fueled by factors including demand for chips, semiconductor materials for AI and clean energy.
“The news is not good,” he added. “If you look at things on an annual basis, from just about every angle, it seems like the trend is sideways, if not slightly upward.”
