The Federal Reserve’s preferred inflation gauge remained elevated last month, following a weaker-than-expected first-quarter GDP reading that could stoke stagflation concerns in the world’s biggest economy.
The Bureau of Economic Analysis’s PCE Price Index report for March, which the Fed closely tracks for a clearer indication of inflation pressures, on Wednesday showed core prices rising at an annual rate of 2.6%. That’s just inside the February reading of 2.8% and matched Wall Street’s consensus forecast of 2.6%.
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Core price pressures, which strip away volatile food and energy components, were unchanged on the month, compared with February’s reading of a 0.4% increase and Wall Street’s consensus estimate of a 0.1% advance.
The BEA’s headline PCE inflation index held at an annual rate of 2.3%, just ahead of Wall Street’s estimate of 2.2% but inside the 2.7% pace recorded in February. The BEA said prices were unchanged on the month, compared with the 0.4% increase recorded in February.
Related: U.S. recession risk leaps as GDP shrinks for the first time since 2022
The BEA also noted that personal incomes for March rose 0.5%, while spending surged 0.7% as consumers rushed to purchase big-ticket items before the Trump administration implements its tariff plans..
Softer growth + sticky inflation = stagflation risk
Overall, however, the softening growth story set against sticky inflation could suggest the economy is facing early stagflation risks.
“Even if today’s weak GDP may have partially reflected companies trying to get ahead of tariffs, it was still a stagflation warning shot over the bow of the economy,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
“This type of data won’t soothe the markets, and it won’t make the Fed’s job any easier.”
Shrinking growth with elevated price pressures has raised concerns over the risk of stagflation in the world’s biggest economy.
Michael M. Santiago/Getty Images
U.S. stocks extended declines following the data release, with the S&P 500 last marked 110 points, or 2%, lower and the Dow Jones Industrial falling 700 points. The tech-focused Nasdaq was down 440 points, or 2.5%.
Benchmark 2-year note yields were 1 basis point higher at 3.671% following the data release, while 10-year notes rose 1 basis point to 4.173%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.17% higher at 99.408
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