March Inflation and Spending Data
In March, the US PCE year-on-year inflation stood at 2.3%, aligning with expectations. The monthly PCE deflator increased by 0.1%, slightly below the anticipated 0.12%, with the unrounded figure at 0.1358%.
Core PCE showed a monthly rise of 0.2% against an expected 0.15%. The unrounded core PCE registered at 0.1788%. The core measure excluding shelter, referred to as “supercore”, focuses on services inflation.
Personal income in March decreased by 0.4%, contrary to an expected rise of 0.3%, following a 0.8% increase in the prior month. Personal spending also fell by 0.1%, against expectations of a 0.1% increase, after a 0.2% increase in the previous month.
Real personal spending dropped by 0.3%, following a previous rise of 0.1%. There is also a noted change in the savings rate, although specific figures are not provided.
Exchange Rate Implications
The USD/JPY exchange rate saw a slight decrease, moving from 144.58 before the data release to 144.44 afterward. The data suggests a cooling of consumer spending and income trends.
Given the data as it stands, what we’re observing is a meaningful deceleration in household activity—both in earnings and outlays—coming through in the March numbers. When the Personal Consumption Expenditures index came in at 2.3% on a yearly basis, it met expectations, which typically reduces the likelihood of market surprises. The monthly increase was just a touch shy of consensus at 0.1%, yet that small miss implies some softness in price pressures, particularly given the unrounded figure.
From our perspective, what’s more telling is the behaviour in core PCE. This metric remains the Federal Reserve’s preferred measure when assessing inflation persistence. A 0.2% monthly rise against an expected 0.15% might seem minor, but on an annualised basis it keeps inflation readings sticky. The unrounded data—sitting close to 0.18%—puts it marginally below more concerning levels, but enough to keep discussions burning regarding policy patience.
Attention turned, rightly so, to the more refined measure that drops out shelter. This “supercore” line filters out housing-related components and drills down into services that are highly sensitive to wage costs. It remained firm, which tells us these pressures haven’t meaningfully backed off. Sustained firm readings in this measure generally argue for caution on tightening bets.
Turning to incomes, the 0.4% decrease in personal income is not in line with recent trends, especially after February’s robust 0.8% gain. That kind of reversal in earnings raises the likelihood that households are starting to feel pressure. There’s a gap forming between income expectations and reality. Add to that the 0.1% decline in spending, and what emerges is a softening footing in consumer behaviour.
The retreat in real personal consumption by 0.3% marks one of the clearer signs of restraint. What individuals are actually purchasing—removing the effects of inflation—is falling, not just slowing. This is a real-time signal that caution is taking root at the household level. We see this as more impactful than headline inflation misses.
The dollar’s move lower against the yen, albeit measured, reflects this softer tone. A dip from 144.58 to 144.44 may seem minor, but foreign exchange markets are typically quick to adjust for changing odds on monetary stance. A weaker read on income and spending opens a little more doubt on further tightening.
For us, having this level of detail gives an unfiltered read of economic traction. Inflation staying relatively consistent but showing some variance between headline and core does little to shift pricing in isolation. But when coupled with shrinking real spending and weakening incomes, it rebalances the risk profile.
Suggested actions should match this environment. Watch shorter-duration sensitivities closely—especially in rates implied by 1- to 3-month tenors. Monitor pricing skew against options where volatility has begun to fade. And it would be prudent to place added weight on real spending and revised income data in future prints, as these are now more predictive of directional bias than single-point inflation reports.
At this stage, it’s about filtering movements and compressions in implied volatility and gauging whether positional unwinds have run their course. We’re watching areas of pricing pressure that persist most—particularly where labour-driven costs feed in—and aligning positioning accordingly. Some of the pace in services inflation looks to be holding even as broader consumption eases, so exposure in those channels may still warrant hedging.
Flattening in rates markets and modest USD pressure suggest the broader interpretation of this data is cautious, but not reactive.
