US Consumer Spending Jumps While Key Inflation Gauge Slows Down

Shoppers at a record store in Atlanta, Georgia. Photographer: Dustin Chambers/Bloomberg Photo by Dustin Chambers /Photographer: Dustin Chambers/Bl

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(Bloomberg) — US consumer spending jumped in March while a key measure of inflation decelerated, a welcome reprieve before tariffs are expected to broadly drive up prices.

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Inflation-adjusted consumer spending climbed 0.7% last month, according to Bureau of Economic Analysis data out Wednesday. That was the most since the start of 2023 and suggested households spent aggressively to get ahead of new tariffs.

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Meantime, the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures price index — stagnated from a month earlier for the first time in nearly a year. Excluding food and energy, the so-called core PCE was also unchanged, the tamest in almost five years.

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The data round out a quarter in which the US economy contracted for the first time since 2022 on a monumental pre-tariffs import surge and more moderate consumer spending. The report earlier Wednesday also showed core PCE inflation accelerated to a 3.5% pace in the first quarter — the most in a year.

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The S&P 500 remained lower while the two-year Treasury yield dropped and the dollar strengthened.

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The combination of slowing inflation and healthy spending suggest the economy was in a good place before the brunt of President Donald Trump’s tariffs took effect. Economists widely expect the trade policies to reinvigorate price pressures and in turn discourage spending.

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“There’s a good chance that tariffs could create conditions to fuel inflation while simultaneously slowing economic growth,” Elizabeth Renter, senior economist at NerdWallet, said in a note. “This complicates the Fed dual mandate — where they’re left deciding what to prioritize: getting inflation down or minimizing the impact to the labor market.”

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Fed officials have indicated they’re in no rush to cut interest rates as they wait for further clarity on how Trump’s policies will impact the economy. While the central bank is an independent institution, the president has been pressuring policymakers to reduce rates, which he says would help stimulate growth.

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Another support for the economy last month was the strongest advance in real disposable income in more than a year. That helped bolster spending, particularly for motor vehicles and other durable goods, which climbed by the most since early 2023. Spending on services rebounded, especially for dining out.