US consumer spending jumps in March; inflation remains tame

WASHINGTON: American consumer spending leapt last month to post the biggest gain in 10 years, recovering from a weak start to 2019, while inflation remained tame, according to government data released Monday.

The strong finish to the third quarter comes a day before the Federal Reserve is due to meet, with markets overwhelmingly expecting the central bank to leave interest rates untouched.

The latest figures confirm the picture of steady economic growth in the first quarter that were released Friday in the Commerce Department's GDP report.

After three weak months, Americans returned to buying durable goods like light trucks and machinery, driving overall spending up to $14.3 billion or 0.9 percent compared to February, the biggest monthly gain since August 2009. That was largely in line with economists' expectations.

When adjusted for inflation, spending rose a slower 0.7 percent, the biggest increase in two years.

At the same time, incomes rose a modest 0.1 percent in March, well below expectations, with disposable incomes flat, driving down the savings rate.

Meanwhile, inflation remained tame.

Rising food and energy costs drove a modest 0.2 percent gain in the Fed's preferred price measure of prices, the Personal Expenditures Consumption price index, which tracks changes in goods and services prices for individuals.

Compared to March of last year, the index gained 1.5 percent, up from the sluggish 1.3 percent recorded in February, still lagging well below the Fed's 2 percent target.

When these volatile categories are stripped out, the "core" PCE price index was flat in the month, and knocked the 12-month rate down a tenth of a point to 1.6 percent, the slowest rate since January of last year.

Policymakers at the Fed have been baffled by the weakness of inflation, which has defied expectations that it will strengthen for several years running -- remaining weak despite an intensifying labor shortage, steady growth and rising wages.

The Fed in January slashed to zero its forecast for the number of interest rate increases in 2019.

Jim O'Sullivan of High Frequency Economics said the March inflation data meant the central bank was even less likely to resume raising rates any time soon.

The "data raise the bar for how much strength Fed officials will need to see in growth and labor market indicators for them to resume tightening," O'Sullivan wrote in a client note.