Markets had been expecting a monthly gain of just 0.1% in core PCE, matching the previous month's rise. Annual core PCE was also projected to rise only 2.0%, in line with the previous month's gain and matching the tip of the Fed's unofficial target level.

Ahead of the release, economists from Lehman Brothers said, "The soft core inflation readings in both the CPI and PCE indexes in the past two months represent a stark contrast to surging commodity prices and the sinking dollar. As stated in the recent Beige Book, firms have likely absorbed some of the increase in input costs in their margins instead of passing them onto consumers, in an effort to protect market share."

"If price pressures prove persistent, however, evidence of pass-through into the core is likely to emerge in the coming months," they added.

The report also cited a 0.3% month-over-month increase in personal income in March, below calls for a 0.4% rise and slower than the previous month's 0.5% gain. Personal spending rose 0.4%, three-tenths above the previous month's 0.1% increase and above the consensus call for a 0.2% increase.

Compensation picked up 0.4% with wages and salaries rising 0.5%, while disposable income increased 0.3%.

The report also recorded a 0.2% increase in the savings rate, below the previous month's revised 0.4% rise.

By Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it