Energy costs rose in the first quarter on the back of the war in Ukraine, rising 33.9% from the year to March. Food prices rose 9.2% over the same period.
After excluding food and energy costs, a measure of PCE inflation rose 5.2%, a slightly slower pace than the 5.3% recorded in February. This indicator is the Fed’s preferred measure of inflation, but a slight downward mark is unlikely to alter the Fed’s policy trajectory.
Economists are hoping inflation has peaked in the first quarter – but only the April data can show any relief.
Looking at March alone, prices rose 0.9% compared to the previous months, while core prices rose 0.3%, which is flat compared to February and in line with economists’ expectations.
Americans are feeling some optimism
A large part of the reason was the drop in gas cost expectations: After prices rose at the pump in March, they eased again in April, bringing some relief to family budgets.
“Other positives for consumer spending in 2022 are the very strong labor market and record household wealth, given rising home values and the stock market which remains high, even with the recent price drop,” said PNC Chief Economist Jos Foucher. “However, higher interest rates this year will become an even bigger burden, especially for big-ticket items.”
However, Friday’s data should be taken with caution: With the exception of February and March, the sentiment index for April was lower than at any time in the past decade.
“Consumers have lost faith in economic policies, as fiscal action has been hampered increasingly by partisanship in the run-up to congressional elections,” said Richard Curtin, chief economist at Consumer Surveys. “Monetary policy is now aimed at smoothing a strong labor market and curtailing wage gains, which are the only factors now supporting optimism.”
Currently, the job market remains strong and employers continue to increase salaries to retain and attract workers. Friday’s BEA data showed that US income rose 0.5%, or $107.2 billion. Incomes available for spending also rose 0.5%, or $89.7 billion, while consumer spending increased 1.1%, or $185 billion, more than the previous month.
But Americans saved less: The personal savings rate fell to 6.2%, the lowest level since 2013.