Inflation rises to its highest level in four decades, according to the Fed’s preferred measure

Inflation accelerated in March to its fastest pace since 1982, measured by the Federal Reserve’s preferred gauge, as war in Ukraine pushed up energy prices and economic problems Supply and strong demand from US consumers persisted.

Consumer prices rose 6.6% in March from a year earlier, up from February’s revised 6.3% increase, as measured by the expenditure price index Commerce Department’s personal consumption statement, which it released on Friday. The March rise was the fastest since January 1982.

The so-called core PCE index – which excludes volatile food and energy prices – rose 5.2% in March from a year earlier, against a 5.3% revision on the year until February.

On a monthly basis, underlying prices rose a seasonally adjusted 0.3% in March from the previous month, the same increase as the revised 0.3% rise in February. That was down from the monthly pace of 0.5% in each of the previous four months – a slight slowdown that hinted that general price pressures may be starting to ease.

Fed Chairman Jerome Powell said at his March 16 press conference that central bank officials are closely monitoring monthly changes in inflation for signs of whether price pressures have decreased recently. The central bank, which is targeting an average inflation of 2%, began raising interest rates in March to cool the economy and signaled that more hikes are on the way.

Friday’s numbers are unlikely to change those plans, said Veronica Clark, an economist at Citigroup. “With core PCE inflation rising at a pace of around 5% for each of the past four quarters, we don’t expect the Fed’s near-term policy outlook to change,” she said. declared.

The US economy contracted in the first quarter at an annual rate of 1.4%, mainly due to a growing trade deficit and a slowing pace of inventory accumulation. However, consumer spending picked up, growing at an annualized rate of 2.7% in the first quarter, up slightly from the previous quarter.

Strong consumer demand continues to outstrip supply, putting upward pressure on prices. Another widely tracked indicator of inflation, the Labor Department’s consumer price index, rose 8.5% in March from a year earlier, a four-decade high. Producer prices jumped 11.2% year-over-year in March, the fourth consecutive month with a double-digit gain, the department reported.

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The CPI is generally hotter than the PCE index due to differences in the spending pools that each capture. The CPI measures changes in the cost of living based on what urban consumers spend out of pocket on a hypothetical basket of goods and services. The PCE index, on the other hand, includes prices in rural areas and those paid by organizations on behalf of households, for example, employer-sponsored health care plans.

Both indices showed energy prices soaring in March, following Russia’s invasion of Ukraine in late February. The PCE energy index jumped 33.9% in March from a year earlier. Food prices also rose sharply, up 9.2% last month, an acceleration from the 8% 12-month rise in February, the Commerce Department reported.

The monthly figures suggest that underlying inflation could be on track to decline significantly by mid-summer, said Omair Sharif, founder of Inflation Insights LLC. “The bigger story is if we can keep the pace slower in the second quarter, then we’ll see a big decline in the annual rate from around 5.3% in March to around 4.2% or 4.3% in June,” he said. That would be close to the Fed’s projection that core inflation will fall to 4.1% in the fourth quarter of this year.

Write to Gwynn Guilford at gwynn.guilford@wsj.com

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