On April 30th, Wednesday, data released by the U.S. Department of Commerce showed that the Federal Reserve's favorite inflation indicator cooled in March, while U.S. consumer spending surged, providing a comforting respite before anticipated tariffs are expected to drive prices up across the board.
<h2>U.S. March PCE Inflation</h2>
The U.S. March PCE data is as follows, with the core PCE price index excluding the volatile food and energy prices:
<blockquote>
The U.S. March PCE price index increased by 2.3% year-on-year, the lowest level since last fall, with an expectation of 2.2% and a previous value of 2.5%.
The U.S. March PCE price index remained unchanged month-on-month at 0%, with an expectation of 0% and a previous value of 0.3%, marking the first time in nearly a year that PCE remained flat.
The U.S. March core PCE price index increased by 2.6% year-on-year, with an expectation of 2.6% and a previous value of 2.8%.
The U.S. March core PCE price index remained unchanged month-on-month at 0%, with an expectation of 0.1%, and the previous value revised from 0.37% to 0.5%. The core PCE month-on-month also remained unchanged, marking the mildest increase in nearly five years.
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</blockquote>
Core service prices—this category excludes housing and energy—showed almost no change, marking the mildest level since 2020.
The market-based core PCE price index increased by 0.01% month-on-month in March and rose by 2.2% year-on-year. The market-based PCE price index excludes estimated prices and does not include some service industry data, which cannot be directly measured and must be estimated. For example, portfolio management and investment advice are significant items not included, primarily tracking U.S. stocks, and several types of insurance are also excluded. Federal Reserve officials have previously pointed out that this indicator better reflects market supply and demand conditions than the overall index.
Nick Timiraos, a well-known financial journalist referred to as the &#34;new Federal Reserve correspondent,&#34; posted on the X platform that although the 12-month PCE indicator is at 2.3%, close to the Federal Reserve's 2% target, the annualized inflation rates for 6 months and 3 months are around 3%.
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Timiraos also noted that the core PCE data for February was significantly revised upward from 0.37% to 0.50%, resulting in a 3-month annualized core PCE inflation rate of 3.5% and a 6-month annualized core PCE inflation rate of 3%, both higher than the 12-month core PCE annualized inflation rate of 2.6%, which is very close to the lowest level in four years.
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In terms of detailed categories, Timiraos stated that compared to the decade before the pandemic, the overshoot in core personal consumption expenditures (PCE) inflation mainly comes from non-housing services: core goods inflation rose by 13 basis points, housing inflation rose by 26 basis points, and core non-housing services inflation rose by 66 basis points. These inflation rates do not all need to return to pre-pandemic levels to achieve the 2% inflation target, as the average core inflation rate before the pandemic was 1.6%.
<h2>U.S. March Personal Consumption Expenditures and Income</h2>
In March, the U.S. real personal consumption expenditures (PCE), adjusted for inflation, increased by 0.7% month-on-month, marking the largest increase since the beginning of 2023, with expectations of a 0.5% increase and a previous value of 0.1% increase. The U.S. personal consumption expenditures (PCE) in March rose by 0.7% month-on-month, with expectations of a 0.6% increase and a previous value of 0.4% increase. Consumer spending data showed that households were actively consuming ahead of the new tariffs taking effect.
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In March, U.S. personal income increased by 0.5% month-on-month, with expectations of a 0.4% increase and a previous value of 0.8% increase.
Real disposable income recorded the largest increase in over a year, providing support to the economy. This growth helped drive consumption, particularly in spending on automobiles and other durable goods, reaching the highest level since the beginning of 2023. Spending on services also rebounded, especially in dining out.
The U.S. savings rate fell from 4.1% in February to 3.9%, while the February data was revised down from 4.6%.
<h2>Analysis and Commentary</h2>
Analysis pointed out that the U.S. March PCE report shows a combination of slowing inflation and healthy consumption. The U.S. economy was in good shape before the large-scale implementation of tariffs by President Trump.
The slowdown in inflation is not surprising for the market, as people can estimate PCE inflation using other official data released earlier this month. The latest PCE data did not show how prices have changed since the announcement of the tariff policy. Economists generally believe that the relevant trade policies of the Trump administration will reintroduce price pressures, thereby suppressing consumer spending.
Most economists believe that tariffs will push prices higher in the coming months, but they disagree on how long the inflation triggered by tariffs will last. Financial market predictions lean towards a relatively short-lived rise in inflation, with some investors betting that tariffs will cool down the U.S. economy and suppress price increases.
Although economists generally expect companies to pass some of the additional costs from tariffs onto consumers, some retailers have indicated that they will be forced to absorb some of the costs due to consumer fatigue after years of sustained inflation. Companies like fast-fashion giant Shein and Procter &amp; Gamble have already raised or plan to raise prices. Meanwhile, other U.S. companies, such as American Airlines Group and General Motors, have withdrawn their earnings guidance due to rising uncertainty.
After the release of the U.S. PCE report, the decline in U.S. stocks narrowed
Data released on Wednesday showed that the U.S. economy contracted for the first time since 2022 in the first quarter of this year, due to a surge in imports ahead of tariff implementation and a moderation in consumer spending. The report also indicated that the core PCE inflation in the U.S. accelerated to an annual rate of 3.5% in the first quarter, the highest level in a year

In March, the U.S. core PCE price index increased by 2.6% year-on-year, in line with expectations of 2.6%, and down from the previous value of 2.8%; both PCE and core PCE showed a month-on-month change of 0. Actual disposable income recorded the largest increase in over a year, providing support to the economy. However, the "New Federal Reserve News Agency" mentioned that although the 12-month PCE indicator is close to the 2% target, the annualized inflation rates for the past 6 months and 3 months remain high

- The U.S. Commerce Department reported a cooling of the preferred inflation measure, the PCE index, in March, alongside a surge in consumer spending ahead of anticipated tariffs.  
- March's PCE inflation rate was 2.3% year-on-year, the lowest since last fall, while real personal consumption expenditures rose by 0.7%, indicating strong consumer activity.  
- Economists predict that tariffs will increase prices in the coming months, but opinions vary on the duration of inflationary pressure, with some retailers absorbing costs due to consumer fatigue.

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Procter & Gamble

The Federal Reserve's favorite inflation indicator cools down, with the core PCE price index in March rising 2.6% year-on-year, and consumer spending remains strong