PCE Inflation, Income & Outlays March 2026: Inflation Anxiety Level?

AI, semiconductors, Iran and oil win the headlines, but inflation is cutting into real fed funds and real wages.

May 03, 2026

The month of April printed equity returns not seen for a single month since 2020, but the inflation creep and lack of clear timelines for the Strait of Hormuz and energy cost relief is building the case for even more macro trouble. This coming week brings payroll numbers with CPI and PPI the following week. The reaction of the EU to auto tariff escalation by Trump raise trade risks and the same applies to USMCA talks ahead.
We update our Personal Income and Outlays chart set below. The inflation histories highlight how price pressure looms higher than any period since 2022-2023 and the Dec 2024 2.9% CPI. PCE and CPI are now both back above long-term medians. The spring 2022 oil price spike fueled by the Russian invasion of Ukraine still does not get raised as a contributor to the 2022 inflation experience by Team Trump. That might raise questions of cause and effect that apply in coming months.
The real fed funds level (using whatever inflation you want to net against fed funds) is heading in the direction of Trump’s wish list of negative real fed funds. That would comprise closet stimulus after a 1Q26 where 4% handle PCE inflation lines arrived with the month of March PCE inflation in the 3% handle zone (see 1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26).
Equity markets have continued to rock in April despite inflation and Iran. We looked at asset returns for the month of April in separate LinkedIn posts. We will update the full asset return charts later.
The policy level chaos is only getting worse on the geopolitical front and domestic DOJ insanity. While it has taken Epstein out of the headlines and handed a set of ugly inflation metrics a back seat for now in equity markets and credit risk pricing, the lack of a clear action plan just keeps the global supplier chain fuse burning (see The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26).

The arrival of Warsh this month will make for some interesting balancing acts between monetary policy and inflation metrics. We can understand why he would rather not do press conferences (avoid direct questions) and also wants to change the data reporting strategy. The PCE metrics just came out with the GDP report for 1Q26 and for the month of March this past week. Those releases and data are making for challenging math for real fed funds.

The above chart frames the timeline for “effective fed funds minus Core PCE.” For this latest date posted, we are down to +0.4%. The level is well below the long-term median of 1.4%.If one sees inflation moving higher and demands from the White House to take rates lower, the economics class students could start wondering why they bother studying.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 3.5%) and the 2.6% Core PCE median (vs. current 3.2%). That 3.5% headline PCE for March is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target and going in the wrong direction.

We include the 1997-2026 timeline above for a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks to cross below or at that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That gets us back to the debate over what is the correct formal inflation target or the “closet target” somewhere above 2%. There is not likely to be a formal change in the target, but the current backdrop would be missing it regardless and going in the wrong direction.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term median differential is zero and we are currently at +0.3%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s.

We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest. Oil has joined in at this point, but there seems to be little interest from team Trump to argue that the 2022 inflation spike was heavily influenced by the Russian invasion of Ukraine. That evasion of the oil impact in 2022 crushes the credibility of the talking heads in the White House (Hassett, Bessent et al.).

The above time series plots headline CPI vs PCE across time. The debates around which inflation metric is the best is something more for the faculty club types, but the above chart drives home how each has behaved across time.

“Higher or lower or stable?” is a good place to start regardless. Any investor should be aware if the line item trends by product groupings, and relative weights are also useful to help guide the strategic reaction headline and core inflation metrics.

Food and Energy is crucial for the consumer even if the monetary ideologues will carry on their views around inflation as narrowly defined in academic terms. The household experience with prices underscore that consumers care about household discretionary cash flow and how their take-home pay frames up vs. their household basket. Derived metrics that do not match up their own checkbook experience (owners’ equivalent rent, health insurance CPI, etc.) matter less to many as their premiums go up and financing costs are higher for their major big-ticket purchases (e.g. autos).

The above chart is something we frequently include in updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements (self-serving lies), material omissions, and conceptually anorexic story telling (like “seller pays the tariffs”)

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month for a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth, as we see again in March 2026, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

The stimulus overload of 2021…

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022. Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Bartiromo. They need to GOP to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some now in oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid). Some shortages also undermine military readiness.

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. A “peace at all costs” strategy by the EU and USMCA partners has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. Trump also just fired a shot across the EU’s bow aimed at German autos.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Those EU talks are now in jeopardy again. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump is launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this chart and the prior chart just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems even at the end of 2025 and into 2026.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through March 2026 (we dropped 2019 from the chart given chart crowding). It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or other health care premiums under ACA. There is also the recurring pressure on select durable goods that face tariffs.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. The current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the running savings rate reconciliation that comes with the Personal Income and Outlays each month. We see a fresh low in March 2026 of 3.6% or well below the April 2025 high of 5.5%.

The “Why?” of declining savings rates can be like a political Rorschach test on “buying on happiness” or “getting slammed on prices of the household basket, tariffs and financing costs.” The saving rate dipped below the 4% line in Dec 2025 and posted 3% handles in 3 of the past 4 months. That savings rate decline can be a function of various forces, but the inflation trends are eating more into wages.

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The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

Employment Situation March 2026 4-4-26

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