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March PCE Inflation Index Forecasts Show Mixed Readings On Price Pressures

Analysts see PCE inflation readings as key to the Fed shifting to rate cuts.

Illustration of capital building with bubbles of currency inflating

The March Personal Consumption Expenditures price index is forecast to show a mixed picture of inflation trends, potentially reinforcing the Federal Reserve’s resolve to hold off on interest rate hikes.

Analysts expect the overall PCE Price Index to rise slightly on a year-over-year basis to 2.6% from 2.5% in February, according to FactSet. However, they also predict the index’s month-over-month change will fall to 0.30% from 0.33%.

When volatile food and energy costs are factored out, economists forecast the core PCE inflation index to rise 2.7%, down slightly from a 2.8% year-over-year increase in February. However, the consensus estimate for core PCE inflation is a month-over-month increase to 0.30% from February’s 0.26%.

The Consumer Price Index report usually overshadows the PCE report, but the latter is the Fed’s preferred method for tracking inflation. With the CPI showing inflation progress as stalled, the PCE is garnering more attention as Fed officials express dwindling confidence about the potential for inflation to continue its decline toward their 2% target.

March PCE Report Forecast Highlights

  • PCE report release date and time: Friday, April 26 at 8:30 a.m. EDT.
  • The PCE price index is forecast to rise 0.30% in March after rising by 0.33% in February.
  • Core PCE is forecast to rise 0.30% in March after rising by 0.26% in February.
  • The PCE price index year over year is forecast to rise to 2.6% in March from 2.5% in February.
  • Core PCE year over year is forecast to fall to 2.7% in March from 2.8% in February.

Stalled Progress On Inflation

NatWest Markets economist Kevin Cummins wrote that the core PCE deflator “may have advanced by another 0.3% in March. On an unrounded basis, our estimate is a ‘low’ 0.3% at 0.256%, which if realized would yield a year-over-year pace of 2.7%, after 2.8% in February and 2.9% in January ... At recent appearances, both Chair Powell and Vice-Chair Jefferson referred to the Fed’s estimate of core PCE inflation for March being at 2.8%.”

Cummins continued: “A 2.8% or a 2.7% year-over-year pace in March would be viewed as insufficient progress on the Fed’s inflation mandate ... A reading in line with our estimate would push up the three-month annualized rate of change for the core PCE from 3.5% in February to 3.9% in March, while the six-month annualized rate of change would tick down from 2.9% to 2.7%—both still a bit too far above the Fed’s target.”

PCE vs. Core PCE

For the March report, Cummins noted that a 0.4% gain in the March core CPI “was chiefly led by outsized gains in the motor vehicle insurance and medical care services components—both of which do not feed into the core PCE deflator.” At the same time, the components of the core PCE deflator sourced from the Producer Price Index, like airfare and financial services, “are likely to have made a decent positive contribution last month. As a result, we expect a 0.3% increase in the core services ex housing measure—a measure often cited by Chair Powell as being key in bringing inflation back down to 2.0% after a 0.2% uptick in February.”

Milder Core PCE Inflation

Morningstar’s chief US economist Preston Caldwell sees a mixed report for March but better eventual news for the PCE. “Core PCE for March will be far milder than core CPI, but it’s still accelerated to an estimated 3.8% annualized in three months ending in March, up from 1.6% in prior three months,” he says. “However, the largest contributors to the acceleration in core PCE inflation (durables, housing, and financial services) should reverse course in coming months. Slowing economic growth over the next year will provide another negative impulse for inflation.”

Core CPI has declined significantly from its last peak in September 2022, but its rate of decline has also slowed. Core PCE also peaked in September 2022 with a 5.5% year-over-year increase. It had declined to a 4.8% rate by the end of 2022, then to 2.9% by year-end 2023.

“Core inflation has continued to trend down on a year-over-year basis, with the core PCE Index reaching 2.7% year over year in March by our estimate, down from 2.9% as of December 2023,” explains Caldwell. “Core CPI is running a good deal higher at 3.8% year over year, with the gap versus the core PCE Index being driven largely by the former’s much higher weight in housing, where inflation is running hot ... However, zooming in to a higher-frequency measure, we have seen core PCE inflation jump to about 3.8% annualized in the three months ending in March, up from 1.6% in the three months ending in December 2023.”

Caldwell points to durable goods inflation as a key factor keeping core PCE elevated: “Given that supply chain conditions remain improved, we expect durables to dip back into deflationary territory. Housing inflation has remained stubbornly high, but leading-edge data still strongly points to a normalization of housing inflation being around the corner.”

Another segment putting upward pressure on core PCE inflation is financial services. “This was driven heavily by the jump in equity prices, and thus this impact should disappear in coming months if equity prices continue to subside,” Caldwell says.

What the March PCE Could Mean for the Fed

Slowing momentum in the fight against inflation could mean investors must wait longer for rate cuts. Last Tuesday, Fed Chair Jerome Powell cited a “lack of further progress” on this front, likely indicating the central bank is hesitant to back off its current rates.

Bond investors agree. The CME FedWatch Tool puts the chance of a rate cut at the Fed’s May meeting at only 4%, and those odds don’t hit even 50% until July. JP Morgan analysts said Powell’s speech last Tuesday indicates he “likely has pushed back his expectations for when the Fed will start to lower rates relative to what they were a few months ago.”

Almost all Fed officials who have recently spoken affirmed that the central bank is not ready to cut rates, according to a Bank of America Global Research report published last Friday. The report says BofA expects “the Fed to start cutting in December at a quarterly cadence.” The analysts also said the “sticky” nature of inflation means that not only will the Fed cut rates later than previously expected, but also by less. The firm now expects rates to normalize at 3.75%, up from 3.25%.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Gabe Alpert

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Gabriel Alpert is a fund reporter for He covers the mutual fund and ETF industries and how they can help investors understand the market as a whole.

Before joining Morningstar in 2024, Alpert worked as both a writer and editor at publications including, Investopedia, and Barron's Magazine.

Alpert holds a Bachelors in political science from the University of Wisconsin-Madison.

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