Two key inflation readings on Friday showed mixed signs for the economy, with the Federal Reserve's favorite indicator suggesting the worst of rising prices may be in the past, while another closely watched metric posted a stronger-than- expected spike.
The inflation indicator fell for the first time in over a year.
The Commerce Department reported that the core personal consumption expenditures index, which measures the price of goods and services paid by consumers, jumped 5.2% in March, coming below average economist expectations of 5.3% and falling on a monthly basis for the first time since October 2020.
Pantheon Chief Economist Ian Shepherdson wrote in an email on Friday that core inflation has peaked and this is the start of a run of bigger declines.
Employment costs jumped 1.4% in the first quarter, much higher than expected, due to increases in benefits, which include paid time off, pensions and healthcare.
Shepherdson said that the data will likely have no immediate effect on Fed policy, but could make a 50-basis-point rate hike in June.
The personal savings rate fell to 5.2% in March, hitting its lowest point in four years, according to the Commerce Department.
The stock market fell immediately after the releases, with the DJIA down 50 points by 10 a.m. Time.
If it is just the latter, it may not provide too much relief to stocks.
The reopening economy, fiscalStimulus and historically low interest rates helped fuel one of the strongest starts to a bull market ever during the pandemic, but stocks have struggled this year as the Fed raises rates and unwinds economic support to ease decades-high inflation. The S&P has fallen as much as 21% this year, after rising 27% in 2021, while the Nasdaq has fallen as much as 11%.
The key risk to the economy is that inflation remains elevated next year, according to a Friday note from a Bank of America economist. The consumer price index report is due on May 11.
The U.S. economy fell 1.4% in the last quarter.
Not even lower inflation can help now as the bear market looms.
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