The March PCE report from the Bureau of Economic Analysis showed that headline personal consumption expenditures inflation rose to 3.5% year over year in March, matching expectations and up from 2.8% in February. Core PCE (which removes the volatile food and energy components) printed at 3.2%, in line with the consensus forecast and up from the February Core PCE reading of 3.0%. Food and energy were significant drivers of the increase, with a 0.7% monthly gain for this segment just in the month of March, as conflict in the Middle East affects the extraction and transportation of a significant amount of the world’s energy.
The ABA Office of the Chief Economist believes this PCE release highlights renewed inflation concerns and increased risks of higher interest rates. For banks, higher rates could suppress commercial real estate and housing activity for businesses and consumers. Persistent inflation could also weigh on credit quality as consumers and business continue to struggle with ever increasing prices.
