U.S. inflation at 2 percent for first time in 6 years

US consumer spending rebounded 0.4 percent in March, while annual inflation up 1.9 percent

USA consumer prices accelerated in the year to March, with a measure of underlying inflation surging to near the Federal Reserve's 2 percent target as weak readings from last year dropped out of the calculation.

The rise in the annual inflation measures reported by the Commerce Department on Monday were anticipated by economists and Fed officials and is not expected to alter the USA central bank's gradual interest rate hikes.

US inflation hovered near the mark for years, but finally reached 2 percent in March. The Fed has projected inflation to be around 1.9 percent by the end of 2018. That was the biggest gain since February 2017 and followed a 1.7 percent rise in February.

The dollar index, which measures the greenback against six major peers, increased 0.31 per cent at 91.828 in late trading.

Economic growth remains solid, and most inflation gauges show annual price increases finally moving close to the Fed's 2 percent target level.

The so-called core PCE price index rose 0.2 percent on a month-on-month basis in March after a similar gain in February. Core inflation was up 1.9% in March from a year earlier. Wages gave a hint of accelerating last week in Labor Department data on the employment cost index, while monthly data due this May 4 are projected to show hiring rebounded in April.

While no one expects the Fed to announce a change in monetary policy settings at its 1-2 May FOMC meeting, there'll certainly be a lively debate regarding inflation.

Fed officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting.

Rising price pressures are encouraging the US central bank to press ahead. Core inflation was last at 2% in April 2012. Inflation is also rising as the labor market tightens.

Market reaction: Investors were prepared for higher consumer spending in March and the PCE index reaching 2% after first-quarter GDP (http://www.marketwatch.com/story/first-quarter-gdp-slows-to-23-but-that-isnt-so-bad-2018-04-27) was released on Friday.

In addition to the good inflation data, household consumption also stepped up growth pace in March.

Currently, interest rates futures imply traders have priced in a 45 percent chance the USA central bank will raise short-term borrowing costs three more times in 2018 with the next hike at its June 12-13 meeting, CME Group's FedWatch program showed.

The Commerce Department's report on Monday also showed consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.4 percent in March after being unchanged in February.

The rise in consumer spending, which accounts for 70% of the economy, gives the economy some momentum at the end of an otherwise weak quarter and provides some support for forecasts that consumption will accelerate this quarter as tax cuts and a gradual pickup in wages filter into Americans' bank accounts and sentiment.

The inflation figures are included in the government's monthly report on consumer spending.

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