The Consumer Price Index rose a respectable 2.5% in the first quarter, driven by strong demand for services, up 3.27% at an annual rate.

Over the 12 months ending in March, CPI rose 3.1%, as consumers continued to spend freely in a tight labor market. In our view, the strong demand for services reflects the slow normalization of spending amid continued demand for goods. Personal income growth of 0.5% in March was boosted by solid gains in wages and salaries, up 0.7% and 5.9% higher than a year earlier. Notably, income growth in the first quarter was the fastest in two years at 7.2%, reflecting both strong growth of wages and salaries and annual increases in personal transfer receipts. While growth of spending has outpaced growth of disposable income since mid-2023, inflation took a bigger bite out of personal savings in the first quarter.