Measure of Core Inflation Improves Slightly

What Friday’s Economic Reports Tell Us

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An important measure of inflation actually got slightly better in March and consumers continued to spend in spite of price increases, reports showed Friday.

Here’s a quick look at the most significant economic indicators of the day and what they tell us.

PCE Inflation

  • The measure of inflation most watched by the Federal Reserve has continued to accelerate, climbing to 6.6% in the year through March, from 6.3% in the year through February, to mark a fresh high since 1982. However, if food and energy prices are excluded from that figure, it decelerated slightly to 5.2% from 5.3%, the Bureau of Economic Analysis said Friday when it released its Personal Consumption Expenditures (PCE) price index. It was the first time in over a year that this “core” inflation rate actually got better. 
  • While the slight improvement in core inflation may not matter much if you’re seeing your gas and grocery receipts skyrocket, removing some of the most volatile components may provide a better gauge of the overall direction inflation is headed, economists said. And given that just about everything seems to have gotten more expensive in the last year, we all want to know when relentlessly higher inflation rates are going to finally peak. PCE inflation is running two to three times hotter than the 2% sweet spot the Fed typically targets.

PCE Spending and Income

  • Consumers had less buying power in March because inflation rose faster than their disposable income, according to the Bureau of Economic Analysis. But they kept right on spending—saving less as a consequence. 
  • More specifically, even though disposable income rose, it wasn’t enough to keep up with inflation, unfortunately. Still, spending rose 1.1% in March—more than the 0.7% economists had expected—and more than the 0.9% increase in prices. Not only did people save a smaller share of their paycheck in March, but many are likely dipping into savings amassed earlier in the pandemic, when stimulus checks and other government aid benefited millions, economists said.
  • The fact that spending outpaced rampant inflation for a third month running was a good sign for the strength of the economy, economists said, and an indication that this week’s surprise drop in first-quarter gross domestic product may not be repeated next quarter. However, households won’t be able to continue dipping into their savings accounts forever, they pointed out.

Employment Cost Index

  • Employee compensation (including pay and benefits) in the first quarter increased 1.4% from the fourth quarter, the biggest increase in the two decades the Bureau of Labor Statistics has been keeping track, exceeding the expectations of economists and showing just how much leverage workers currently have in the job market.
  • Rapidly rising wages will likely encourage the Federal Reserve to be more aggressive in its efforts to clamp down on inflation (by raising its benchmark interest rate)—lest those pay increases pour more fuel on the inflation fire, economists said.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Bureau of Economic Analysis. “Personal Income and Outlays, March 2022.”

  2. FRED Economic Data. “Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index).

  3. MarketWatch. “US Economic Calendar.”

  4. Bureau of Labor Statistics. “Employment Cost Index Summary - 2022 Q01 Results.”

  5. Wells Fargo Securities. “Race for Workers Shifts into Sixth Gear.”

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