Inflation fell to zero in March, a welcome reprieve after persistent inflation under President Biden and the best reading in nearly five years, even as consumer spending accelerated sharply and incomes rose solidly — a powerful signal of economic improvement at the start of the Trump administration.
The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, was flat in March, according to data released Wednesday by the Bureau of Economic Analysis. Core PCE — which strips out food and energy — was also unchanged, marking the tamest monthly inflation reading since early 2020.
Compared with a year ago, the PCE index is up 2.3 percent and the core index is up three percent, both below the month-earlier figures. The Federal Reserve says it targets two percent inflation when making monetary policy.
President Donald Trump anticipated the fall in inflation at a rally Tuesday night in Michigan.
“Inflation is basically down and interest rates came down despite the fact that I have a Fed person who’s not really doing a good job, but I won’t say that,” Trump said.
The good news on prices was not caused by a weakening American consumer. Inflation-adjusted consumer spending rose 0.7 percent, the strongest gain in over a year. Durable goods purchases jumped 3.2 percent, while services spending climbed 0.6 percent. The spending surge followed a February revision upward, showing that households had already been ramping up consumption before the March acceleration.
The March figures suggest an economy regaining its footing — with inflation cooling off and consumer strength broadening. Real disposable income increased 0.5 percent, wages and salaries climbed 0.5 percent, and farm income soared, boosted by commodity assistance payments. The personal saving rate held steady at 3.9 percent, indicating households are not burning through cash to sustain spending.
Over the entire first quarter, core PCE inflation ran at a 3.5 percent annualized pace, largely reflecting stronger readings in January and February. But March’s flat result resets the trajectory and bolsters the case that inflation is stabilizing — even as consumer spending and business investment expands.
Although the first-quarter GDP report showed a modest contraction, driven by a surge in imports and slowing inventory accumulation, the strength of March’s consumer and inflation data points to a fundamentally healthier economy than the topline figure suggests. Rather than a warning sign, the March data suggests a robust and improving U.S. economy — with inflation easing and demand growing.
The latest inflation data supports President Trump’s argument that the Federal Reserve has room to cut interest rates without reigniting price pressures. With core inflation flat and consumer demand strong, the case for maintaining restrictive monetary policy may be weakening.
