Core PCE +0.2% March and +1.8% YOY, Fed OK With This Inflation Rate. Savings +4.2% As Consumers Hold Back.

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were even in March and +0.6% year-over-year through March. Excluding volatile oil and food costs from the readings, “Core” PCE price index for March was +0.2% and +1.8% YOY through March. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At +1.8%, Core inflation is within their comfort zone, but the ultimate effect of massive government stimulus is inflation, so this is something to watch—markets move fast, just last quarter, all the fear was about deflation.

Another noteworthy item from today’s Personal Income & Outlays report was the fact that households are hoarding cash with the Personal Savings Rate rising 4.2% annualized, the highest level in more than 10 years.