What To Expect From Friday's Key Report On Inflation

What To Expect From Friday's Closely Watched Report On Inflation

The PCE Index is the Fed's Preferred Gauge of Inflation as it Considers Rate Cuts

By
Diccon Hyatt
Diccon Hyatt
Full Bio
Diccon Hyatt is an experienced financial and economics reporter who has covered the pandemic-era economy in hundreds of stories over the past two years. He's written hundreds of stories breaking down complex financial topics in plainspoken language, emphasizing the impact that economic currents would have on individuals' finances and the market. He's also worked at The Balance, U.S. 1, Community News Service and the Middletown Transcript.
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Updated April 25, 2024
Consumers shop at a retail chain store in Rosemead, California, on December 12, 2023.

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Key Takeaways

  • Economists expect the Federal Reserve's preferred measure of inflation remained stubborn in March.
  • The Personal Consumption Expenditures index will likely follow its counterpart inflation measures, but the details could make the Federal Reserve's job of parsing the data more difficult.
  • Inflation has run hotter than expected in each month so far this year, making predictions all the harder.
  • Fed officials have said they need more confidence that inflation is under control before the central bank will cut interest rates.

The Fed’s preferred gauge of inflation likely stayed stubbornly high in March, though the details of Friday's official report could complicate the picture. 

The cost of living measured by the Bureau of Economic Analysis’s Personal Consumption Expenditures (PCE) index is expected to have increased 2.6% over the 12 months ending in March, according to a survey of forecasters by Dow Jones Newswires and The Wall Street Journal. That would be an acceleration from the 2.5% annual rate reported in February, and still above the 2% rate officials at the Federal Reserve target when they set the nation’s monetary policy. 

Economists Got Sneak Peek Thursday

However, Thursday's report on Gross Domestic Product (GDP) gave hints that March's inflation measure may be higher than economists anticipate.

Inflation in the entire first quarter rose at an annualized rate of 3.4% in the first quarter, up from 1.8% in the fourth quarter of 2023, the Bureau of Economic Analysis said in the GDP report Thursday. That figure incorporates data on inflation from January and February, which have already been made public, and from March, which won't be released until tomorrow.

The high quarterly figure signals either inflation accelerated in March or the figures for previous months were revised upward, economists said.

What Core Inflation Could Mean For Interest Rates

Economists, however, expect core inflation, which excludes volatile prices for food and energy, to have declined to 2.7% from 2.8% in February. That’s a key measure for anyone concerned with interest rates. 

Policymakers at the Fed closely watch core PCE as an indication of the trajectory of inflation because it’s not influenced by things like weather, which can move food and oil prices but are not linked to broader inflation trends. 

Inflation figures, however, have had a nasty habit of running hotter than expectations in the first three months of this year. Should that trend continue, it could prompt officials at the Federal Reserve to keep interest rates higher for longer to quash inflation by making all kinds of loans more expensive and cooling the economy. 

“Persistently disappointing dynamics in consumer prices are likely to lead Fed officials to look for a larger accumulation of evidence that points to inflation normalization before deciding to pull the trigger on rate cuts,” economists at TD Securities wrote in a commentary. 

Update, April 25, 2024: This article has been updated to include first-quarter inflation information from Thursday's report on Gross Domestic Product.

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  1. Bureau of Economic Analysis. "Gross Domestic Product, First Quarter 2024."

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