The numbers: The personal consumption expenditure price index rose 0.5% in March, the Commerce Department said Friday. Excluding volatile food and energy prices, the core rate rose 0.4%.
Economists polled by the Wall Street Journal expected a 0.3% gain in the core rate.
The strong March gains combined with “base effects” pushed heading inflation up 2.3% over the past year from 1.5% in the prior month.
The core rate rose to a 1.8% annual rate from a 1.4% rate in February.
What happened: In a separate report from the Labor Department, the employment cost index, considered the best measure of wages, rose 1% in the first quarter after a 0.8% gain in the prior three months. Economists were expecting a 0.7% gain.
Over the past year, wages are up 2.7% up slightly from a 2.6% gain in the prior quarter.
Big picture: Fed Chairman Jerome Powell continues to write off accelerating inflation readings as temporary. The central bank has also said it will let inflation run above its 2% target for a time to make up for the years inflation was below the Fed’s target. The gain in wages shows that the pandemic has not crushed the ability of workers to get higher pay which is what happened after the 2008 financial crisis.
What are they saying? “PCE inflation will likely rise to 3% and the core PCE inflation close to 2.5%. Although these sharp spikes will dissipate, we anticipate the robust growth in aggregate demand will support more sustained inflation pressures,” said Mickey Levy, chief economist for Americans at Berenberg Capital Markets.
Market reaction: Stocks
DJIA,
-0.62%
SPX,
-0.60%
were lower in midday trading Friday after a slew of earnings reports this week.
