Research
April 30, 2026
PCE Deflator
Consumer inflation jumped in March; consumers dipped into savings to boost spending
The Personal Consumption Expenditures (PCE) deflator—the Federal Reserve’s preferred inflation gauge—jumped 0.7% in March, up from 0.4% in February and the fastest pace of monthly growth since June 2022. Energy costs were higher due to the war in Iran, buoying this headline figure. Over the past 12 months, the PCE deflator has risen 3.5%, up from 2.8% year-over-year in February and the fastest rate since May 2023.
Core PCE inflation, which excludes food and energy, rose 0.3% in March. On a year-over-year basis, core inflation rose from 3.0% in February to 3.2% in March, the highest since January 2024.
Overall, these data mirror the acceleration in prices in March seen in other data, particularly for energy costs. Even before the conflict in Iran, consumer inflation has trended higher over the past year, halting the moderation in price growth expected coming into that period.
This places the Federal Reserve in a difficult position. The labor market continues to show signs of cooling, yet inflation remains stubborn and drifting in the wrong direction. As a result, the Federal Open Market Committee is likely to hold policy steady for the foreseeable future. While additional rate cuts remain possible in 2026, they are unlikely to occur before later in the year.
Beyond the inflation figures, personal consumption expenditures increased 0.9% in March, up from 0.6% in February and marking the strongest monthly gain since December 2024. Consumers, therefore, continued to spend at a solid pace despite lingering economic uncertainty, and larger tax refunds could be part of that trend. Spending at foodservices and accommodations rose 0.2% in March, extending the 0.5% gain seen in February.
Over the past year, total personal spending has grown a healthy 5.7%, while expenditures on foodservices and accommodations were up 3.4% since March 2025, pointing to resilient consumer demand even amid persistent headwinds and softer readings in recent months.
Some of this growth reflects higher prices, even as real spending advances at a more measured pace. Inflation‑adjusted personal consumption edged up 0.2% in March and was 2.1% higher than a year ago. In contrast, real spending on foodservices and accommodations was flat over the past year.
Personal income rose 0.6% in March after being unchanged in February. Personal income grew 3.7% over the past 12 months. Wages, which have been a large contributor to the economy’s resilience, increased 0.4% in March, with 4.1% growth year-over-year.
With spending rising and incomes down, the personal savings rate declined from 3.9% in February to 3.6% in March, the lowest since October 2022. Overall, the savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.1% since the start of 2023. The savings rate over the past 11 months has consistently run below that already‑reduced pace.
Core PCE inflation, which excludes food and energy, rose 0.3% in March. On a year-over-year basis, core inflation rose from 3.0% in February to 3.2% in March, the highest since January 2024.
Overall, these data mirror the acceleration in prices in March seen in other data, particularly for energy costs. Even before the conflict in Iran, consumer inflation has trended higher over the past year, halting the moderation in price growth expected coming into that period.
This places the Federal Reserve in a difficult position. The labor market continues to show signs of cooling, yet inflation remains stubborn and drifting in the wrong direction. As a result, the Federal Open Market Committee is likely to hold policy steady for the foreseeable future. While additional rate cuts remain possible in 2026, they are unlikely to occur before later in the year.
Beyond the inflation figures, personal consumption expenditures increased 0.9% in March, up from 0.6% in February and marking the strongest monthly gain since December 2024. Consumers, therefore, continued to spend at a solid pace despite lingering economic uncertainty, and larger tax refunds could be part of that trend. Spending at foodservices and accommodations rose 0.2% in March, extending the 0.5% gain seen in February.
Over the past year, total personal spending has grown a healthy 5.7%, while expenditures on foodservices and accommodations were up 3.4% since March 2025, pointing to resilient consumer demand even amid persistent headwinds and softer readings in recent months.
Some of this growth reflects higher prices, even as real spending advances at a more measured pace. Inflation‑adjusted personal consumption edged up 0.2% in March and was 2.1% higher than a year ago. In contrast, real spending on foodservices and accommodations was flat over the past year.
With spending rising and incomes down, the personal savings rate declined from 3.9% in February to 3.6% in March, the lowest since October 2022. Overall, the savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.1% since the start of 2023. The savings rate over the past 11 months has consistently run below that already‑reduced pace.