The Federal Reserve's preferred measure of inflation, the personal consumption expenditures (PCE) core deflator, which measures all prices minus food and energy, advanced by 0.169% in March, contributing to a year-over-year change of 2.070%, according to the report from the Commerce Department.

The annual change in prices is now slightly above the Fed's comfort level of 1.6% to 1.9%, said Paul Ashworth, U.S. economist at Capital Economics.

But Charmaine Buskas, senior economics strategist from TD Securities, said Wednesday's FOMC statement that "readings on core inflation have improved" was corroborated in this report when looking at the three-month and six-month price trends, which still hover around 2%. "In terms of the inflation content of the report, there are indications that what the Fed said yesterday in the FOMC communiqué still holds," she said.

She added that if inflation trends remain this tame, the Fed may have room to cut rates further in June.

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. Meanwhile, 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.

Ashworth said the advance in personal spending is a bit misleading seeing as how much of that increase is just consumers paying more for the same things rather than actually increasing consumption. He noted that real consumption (PCE adjusted to remove price changes) only increased by 0.1% in March, following a 0.1% decline in the previous month.

Combining both months, "real consumption is basically flat," he said, adding that consumer confidence indexes imply consumption will actually contract soon, a worrying forecast given than U.S. personal spending makes up for 70% of U.S. GDP

"Even though nominal spending was generally robust, in real terms it doesn't look so good," Buskas said, adding the report was "mixed".

Rishi Sondhi, economist at RBC Capital Markets, said the data confirms the quarterly GDP report from Wednesday, noting that real spending continued to remain subdued in March while real disposable income - "historically the major driver of spending increases" - decelerated.

The report also recorded a 0.4% gain in compensation, with wages and salaries rising 0.5%, disposable income advancing 0.3% and the savings rate rising 0.2%.

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