The Fed’s favorite inflation gauge rose 5.2% in March as worker pay fell further behind

A measure that the Federal Reserve focuses on to gauge inflation rose in March, cementing the central bank's intention to raise interest rates by half a percentage in May.

The core personal consumption expenditures price index, which measures costs that consumers pay across a wide swath of items and accounts for how behavior changes in response to market dynamics, increased 5.2% from a year ago.

February's reading was the highest since 1983 and it was slightly below the 5.3% reading in February.

The reading was less than the estimate. On a month-over-month basis, core prices rose in line with the estimate, providing some hope that inflation could be peaking.

The PCE index increased by 6.6%, the fastest pace since 1982. Headline inflation increased by 0.9% from February, much faster than the previous increase.

The Bureau of Labor Statistics reported that the employment cost index increased in the first quarter. The estimate was 1.1%.

The total compensation cost for nongovernment workers was up over the past year. The increase was 5%, the highest growth rate ever in a data series that dates to 2002 though only slightly above the previous quarter's 4.9% gain.

The bigger story from today's data releases was that inflation is starting to ease.

The data points don't do much to refute the idea that inflation is running at a faster pace than the Fed would like. Markets expect a 50-basis-point increase during the Federal Open Market Committee meeting next week.

Hunter said that the leveling off of the inflation data supports our view that inflation will fall a little more quickly this year than Fed officials think.

The BEA released a report Thursday showing that the broadest measure of U.S. economic growth fell in the first quarter.

The data raised some concerns that the economy is cooling if not heading into a recession because of the decline in inventories and record U.S. trade deficit.

As the Fed looks to fight inflation not seen since the early 1980s, rising interest rates would help reduce activity further.

The rising employment costs are not keeping up with inflation.

Real disposable personal income, the amount of income after taxes and adjusted for inflation, decreased in March after increasing in February. Personal income increased by 0.5% while real spending increased by 2%.

Americans dipped into savings because of rising costs and falling income. The personal saving rate fell to 6.2% from 6.8% in February.