Pedestrians carry shopping bags while walking through the Grand Prairie Premium Outlets mall in Grand Prairie, Texas, U.S. (Photographer: Laura Buckman/Bloomberg)

U.S. March Consumer Spending Picks Up While Core Inflation Cools

(Bloomberg) -- U.S. consumer spending rebounded in March while the Federal Reserve’s preferred underlying inflation gauge eased to a one-year low, reinforcing the central bank’s patient stance on interest rates even as the economy’s main engine holds up.

Purchases, which make up more than two-thirds of the economy, rose 0.9 percent in March from the prior month, topping estimates with the best gain in almost a decade, after a 0.1 percent February increase, according to a Commerce Department report Monday that combined two months after delays related to the government shutdown. Personal income rose 0.1 percent in March, less than forecast.

Excluding food and energy, the Fed’s preferred core-price gauge was little changed from the previous month, compared with estimates for a 0.1 percent gain. The measure was up 1.6 percent from a year earlier, the slowest since January 2018 and missing projections. The broader personal consumption expenditures price index rose 0.2 percent in March from the previous month and climbed 1.5 percent from a year earlier, also below forecasts.

U.S. March Consumer Spending Picks Up While Core Inflation Cools

The signs of consumer strength follow Friday’s gross domestic product report showing consumer spending, the largest chunk of the economy, cooled in the first quarter to a 1.2 percent pace of gains. That was offset by boosts from inventories and trade that helped economic growth accelerate to a 3.2 annualized rate.

The new data aren’t likely to move the Fed away from its pledges to remain patient amid tightness in the labor markets, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “The inflation numbers definitely are going to restrain any impulse some might have had to try to raise rates in the near term,” he said.

The below-forecast price data Monday showed inflation still below the Fed’s 2 percent goal despite low unemployment and what most economists see as above-average growth. Policy makers on Wednesday are expected to hold interest rates steady, though new growth and inflation data are likely to affect their characterization of the economy.

U.S. March Consumer Spending Picks Up While Core Inflation Cools

A broader question for the Fed and Chairman Jerome Powell -- who holds a press conference Wednesday -- is how low core inflation could go before the central bank cuts interest rates to maintain the credibility of the 2 percent goal for price gains. President Donald Trump has cited muted inflation as a reason for the Fed to ease monetary policy to support growth.

“Right now, in the cross currents, the Fed is just going to reiterate patience,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA. “The pick-up in consumer spending is going in a different direction for policy implications.”

Forecasts in Bloomberg survey had called for March spending to increase 0.7 percent with incomes up 0.4 percent. Economists had forecast the annual inflation gauge would climb 1.6 percent while the core measure advanced 1.7 percent. Longer term projections point to the core gauge firming this year, to a 2 percent pace in the fourth quarter, the same as the median estimate by Fed policy makers in March.

Monday’s release included personal spending data for both February and March. The earlier data were delayed because of the federal government shutdown that ended in January. The latest figures reflect a monthly breakdown of data already included in Friday’s GDP report.

While the main income figure missed forecasts, wage and salary gains were solid with a 0.4 percent monthly rise in March following a 0.3 percent increase in February. Lower interest income and farm payments dragged down the headline number, Commerce said.

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