What to expect in the Federal Reserve’s preferred PCE inflation report?

The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase. March core PCE is also projected to grow at an annual pace of 2.6%, while the headline PCE inflation is forecast to tick up to 2.6% (YoY) from 2.5%.

The Federal Reserve’s revised Summary of Economic Projections (SEP), also known as the dot plot – published alongside the policy statement after the March meeting – showed that policymakers expect the annual core PCE inflation to be at 2.6% at the end of 2024, up from the 2.4% forecast seen in the December’s SEP. 

On Thursday, the BEA reported that the core PCE Price Index rose 3.4% on a quarterly basis in the first quarter, at a much stronger pace than the 1.8% increase seen in the last quarter of 2023. The initial market reaction to this data helped the US Dollar (USD) gather strength against its rivals. Since the quarterly figures were already unveiled, markets are likely to pay little to no attention to the monthly PCE inflation numbers.

Previewing the PCE Price Index data, “another firm increase in March CPI inflation will likely result in a still firm 0.25% m/m gain for the core PCE — though we flag that the risk to our forecast is to the upside,” said TD Securities analysts in a weekly report and added:
“The PCE's supercore likely rebounded to 0.30% m/m after a modest 0.18% gain in February. Separately, personal spending likely ended the quarter on a strong note, expanding again at a solid pace in March.”