WASHINGTON (MarketWatch) — The rate of U.S. inflation slowed in March one month after hitting a five-year peak, reflecting lower prices for gasoline and other consumer goods such as new autos.
The halt last month to the recent rise in inflation could ease pressure on the Federal Reserve to raise interest rates, though the central bank appears on track to increase them within the next few months.
The U.S. economy is still growing steadily almost eight years after the end of the Great Recession, with stock markets at record highs, unemployment at a cycle low of 4.5% and wages on the rise amid a growing shortage of skilled workers. Read:Fed to signal rate-hike plan in place
In recent trading, the Dow Jones Industrial Average
In March, the PCE index fell 0.2% to mark the first decline in more than a year, the government reported Monday. A core index that strips out the volatile food and energy categories also dropped 0.1%, reflecting the largest decline since 2001.
As a result, the 12-month rate of PCE inflation subsided to 1.8% in March from 2.1% in the prior month.
The PCE, the Fed’s preferred inflation, topped 2% in February for the first time since 2012.
Consumer spending, meanwhile, was flat in March and the government also revised outlays in February to show no gain. Economists polled by MarketWatch had forecast a 0.1% increase.
The two-month stretch in spending was the weakest since the end of 2014 and start of 2015, contributing to a poor 0.7% growth rate in gross domestic product in the first quarter.
Read: U.S. economy bogs down in first quarter with slowest growth in 3 years, GDP shows
Consumers outlays rose just 0.3% in the first three months of the year, a steep drop from the 3.5% gain at the end of 2016.
Still, consumers are generally in good shape. Incomes rose again in March and consumers saved more. Personal income increased 0.2% in March and the savings rate edged up to 5.9% from 5.7%, the highest since last summer.
What’s more, the dropoff in spending in the first quarter resulted largely from temporary influences that are likely to fade in the spring.
Millions of Americans may have held back, for one thing, because tax refunds were delivered later than usual. If so, the arrival of government checks could also give a boost to spending in the second quarter.
Americans also spent less on gasoline and utilities because of falling oil prices and unseasonably warm weather.
Auto dealers, for their part, reduced prices to try to drum up sales after a busy holiday season was followed by a lull.
Lower prices help American households. After adjusting for inflation, real spending actually rose 0.3% in March to mark the biggest increase in four months.