The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditure (PCE) index, was flat for the month of March, at 0.8 percent, while the 12-month headline rate was 2.7 percent. Core PCE, which excludes the volatile food and energy categories, rose 2.8 percent. Inflation was above expectations and remains higher than the Fed’s long-run target of 2 percent. 

Unlike its better-known peer, the consumer price index, the PCE has a lower weighting in shelter costs: 15 percent for the PCE and 33 percent for the CPI.  March’s increase was attributed to an increase in healthcare services as well as energy costs. Food costs fell for the month.

Personal income also jumped in March to 0.5 percent from 0.3 percent in February. There was little reaction from markets as Thursday’s GDP report included first-quarter PCE data, which gained 3.4 percent annually.

The PCE is preferred by the Fed as it adjusts for changes in consumer behavior and places less weight on housing costs than the CPI. The central bank watches both headline and core PCE, but believes the ex-food and energy data provides a better look at long-term trends.

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