Key US PCE inflation measure hits Fed’s 2% annual target

Washington (AFP) – The US inflation measure most closely watched by the Federal Reserve hit the two percent annual target for the first time in just over a year, the Commerce Department reported Monday.

Although the index was flat in March compared to February, the two percent rise in the 12-month Personal Consumption Expenditures (PCE) price index is sure to feed concerns the Fed will have to raise interest rates faster.

The Fed opens its two-day policy meeting on Tuesday but is widely expected to keep the benchmark lending rate unchanged this time. 

Still, with signs wages are finally starting to rise, and pressure on prices, there is growing expectation the central bank could raise rates three more times this year, a prospect that has hit stock prices in recent weeks.

Excluding more volatile food and energy components, the PCE price index rose 0.2 in the month and 1.9 percent compared to March 2017. The so-called core 12-month index has remained below the Fed’s two-percent target for nearly six years.

Food prices rose 0.2 percent compared to February, while energy prices dropped 2.8 percent, according to the report.

Meanwhile, personal income rose 0.3 percent or $47.8 billion in the month, while spending rose 0.4 percent or $50 billion, with spending on vehicles, electricity and gas cited as the major contributors to the increase, the Commerce Department said.

Wages and salaries increased 0.2 percent in March, slowing sharply after four months of gains at more than double that rate.

As reported in the GDP data Friday, personal income increased 4.4 percent in the first three months of the year, including a 5.6 percent jump in salaries. 

Spending increased 1.1 percent in the first quarter after a four percent jump in the final three months of 2017.