Energy costs soared in the first quarter due to the war in Ukraine, rising 33.9% in the year to March. Food prices increased 9.2% during the same period.
Excluding food and energy costs, the PCE inflation measure rose 5.2%, a slightly slower pace than the 5.3% recorded in February. This index is the Fed’s preferred measure of inflation, but the slight decline is unlikely to change the Fed’s policy path.
Economists are hopeful that inflation may have peaked in the first quarter, but only April data could show any relief.
In March alone, prices rose 0.9%, more than in previous months, while core prices rose 0.3%, the same as in February and in line with economists’ expectations.
Americans feel a bit more optimistic
A big part of the reason was a drop in gasoline cost expectations: After prices at the pump soared in March, they moderated again in April, easing household budgets somewhat.
“Other positives for consumer spending in 2022 are the very strong job market and record household wealth, due to rising home values and a still-elevated stock market, even with recent price declines,” he said. PNC Chief Economist Gus Faucher. “However, rising interest rates this year will be more of a drag, especially for high-value items.”
That said, Friday’s data should be taken with a grain of salt: With the exception of February and March, April’s sentiment index was still lower than at any point in the past decade.
“Consumers have lost confidence in economic policies, with fiscal actions increasingly hampered by partisanship in the run-up to congressional elections,” said Richard Curtin, chief economist at Surveys of Consumers. “Monetary policy is now aimed at tempering the strong labor market and cutting wage gains, the only factors now supporting optimism.”
For now, the labor market remains strong and employers continue to raise wages to retain and attract workers. BEA data on Friday showed US revenue rose, adding 0.5% or $107.2 billion. Disposable income also increased 0.5%, or $89.7 billion, while consumer spending increased 1.1%, or $185 billion, more than in the previous month.
However, Americans saved less: The personal savings rate fell to 6.2%, the lowest level since 2013.