Energy costs rose in the first quarter as a result of the war in Ukraine and increased by 33.9% for the year ended March. Food prices rose by 9.2% over the same period.
Excluding food and energy costs, PCE inflation rose 5.2%, a slightly slower pace than the 5.3% recorded in February. This index is the Federal Reserve’s preferred measure of inflation, but the slight tick dip is unlikely to change the Fed’s policy path.
Economists are hopeful that inflation peaked in the first quarter, but only April data could provide some relief.
In March alone, prices rose 0.9%, more than in previous months, while core prices rose 0.3%, in line with February and in line with economists’ expectations.
Americans are feeling a little more optimistic
Much of the reason was a drop in expectations for gas costs: after pump prices rose in March, they moderated again in April, bringing some relief to household budgets.
“Other positives for consumer spending in 2022 include a very strong labor market and record high household wealth, driven by rising house prices and a still rising stock market, even with recent price declines,” said PNC chief economist Gus Faucher. “However, rising interest rates this year will become more of a drag, especially for big-ticket items.”
That said, Friday’s data should be taken with a grain of salt: With the exception of February and March, the sentiment index for April was still lower than at any point in the past decade.
“Consumers have lost confidence in economic policy, and fiscal action is increasingly hampered by partisanship in the run-up to congressional elections,” said Richard Curtin, chief economist for the Surveys of Consumers. “Monetary policy is now focused on dampening the strong labor market and curbing wage growth, the only factors supporting the optimism now.”
For now, the job market remains strong and employers continue to raise salaries to retain and attract workers. Friday’s BEA data showed that US incomes increased by 0.5% or $107.2 billion. Disposable incomes also grew 0.5%, or $89.7 billion, while consumer spending grew 1.1%, or $185 billion, more than in the previous month.
However, Americans have saved less: The personal savings rate fell to 6.2%, the lowest level since 2013.