Mission accomplished: U.S. inflation hits 2%

U.S. consumer spending picked up in March while the Federal Reserve’s preferred inflation gauge hit the central bank’s 2 percent target for the first time in a year, reinforcing the outlook for further interest-rate hikes.

Purchases rose 0.4 percent from the prior month, matching estimates, after being little changed in February, Commerce Department figures showed Monday. The price gauge linked to consumption rose 2 percent from a year earlier after 1.7 percent in February; excluding food and energy, which officials see as a better gauge of underlying trends, it was up 1.9 percent.

The rise in consumer spending, which accounts for 70 percent of the economy, gives the economy some momentum at the end of an otherwise weak quarter, and provide some support for forecasts that consumption will accelerate this quarter as tax cuts and a gradual pickup in wages filter into Americans’ bank accounts and sentiment. At the same time, the income figures were slightly below forecasts, reflecting the weakest gain in wages and salaries since October.

Even with the Fed’s preferred price measure hitting its target, central bankers are likely to react with restraint and stick to their plan for gradual interest-rate hikes, though the trend could nudge them toward four increases this year. Policy makers are expected to leave borrowing costs unchanged at their two-day meeting concluding Wednesday, then raise rates in June for the second time this year.

Source: Bloomberg Pro Terminal

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