Key index shows inflation rising; Jobless claims decline

An inflation index that is preferred by the Federal Reserve in its rate-setting decisions showed annual core inflation, excluding volatile food and energy costs, posting higher than expected at 2.8% in February. The all-items figure in the Commerce Department’s personal consumption expenditures report posted at 2.5%, on par with analyst expectations.

Oxford Economics analysts said the latest inflation data will likely spur the Fed to keep leaving its key borrowing rate unchanged until at least late 2025, especially with the full effects of pending trade tariffs on consumer prices still to be seen.

“While the scale of that impact depends on how large the administration goes on tariffs, our current baseline calls for consumer spending growth to slow to 2% this year, and core inflation to breach back above 3% by mid-year,” Oxford Deputy Chief U.S. Economist Michael Pearce said in a statement. “We think that combination will keep the Fed on extended pause, especially with inflation expectations showing increasing signs of becoming unanchored.”

The Commerce Department’s all-items inflation figure at 2.5% was below the 2.8% reported earlier this month in the Labor Department’s better-known consumer price index. It was also closer to the Fed’s target of 2% optimum inflation, with the Fed’s next rate-setting meeting scheduled for May 6-7.

The government data arrived as the University of Michigan released revised national survey figures showing March consumer confidence fell nearly eight points from February and dropped more than 22 points from March 2024. Respondents’ median year-ahead inflation expectation jumped from 4.3% in February to 5% this month. 

Initial claims for U.S. unemployment insurance totaled 224,000 for the week ended March 22, down 1,000 from the prior week and remaining within the general range of 200,000 to 250,000 weekly claims posted within the past year, according to the latest Labor Department data.

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said initial claims have recently stabilized at levels consistent with private-sector layoffs that remain low by historical standards, though continued claims remain elevated as unemployed workers find it tougher to find new positions as a result of slowed hiring.

Initial claims by federal employees have recently declined, though Oxford analysts expect them to rise in months ahead as more government jobs are cut.

“Both initial and continued claims in Washington, D.C., Maryland and Virginia, the most likely areas to feel spillover effects from federal layoffs and cuts to federal programs, declined last week but are up sharply from a year ago,” Vanden Houten said in a statement.