Inflation measures pick up By Greg Robb, MarketWatch WASHINGTON (MarketWatch) — The U.S. economy slowed markedly in the first quarter and inflation accelerated, clear evidence of the double whammy on the economy from higher gasoline prices. In its first estimate Thursday, the Commerce Department said gross domestic product rose at a 1.8% annual rate between January and March, slower than the 3.1% pace in the prior three months. Economists polled by MarketWatch had expected a slightly weaker 1.7% growth rate. They blamed the slowdown on weather disruptions and higher gasoline prices, as well as a drop in defense spending. See our economic calendar with forecasts of major indicators. One of the big stories of the first quarter was weaker consumer spending. There was also a dramatic decrease in government spending and businesses slowed investments. The trade sector was also a slight drag on growth after boosting output in the fourth quarter. If inventories are excluded, there was even a more dramatic slowdown. Final sales rose at a 0.8% rate in the first quarter after rising 6.7% in the fourth quarter. Still, many economists maintain the view that growth will accelerate as the year progresses, particularly if the spike in oil unwinds. They point to a resurgent manufacturing sector and a slowly improving labor market that’s putting more people back to work — and putting more cash into the economy. Read U.S. economy in rough patch. Will it last? Federal Reserve Board Chairman Ben Bernanke put himself squarely in this camp at his first-ever post-rate decision press conference Wednesday. Bernanke said Fed officials do not expect the slowdown in the first quarter to last. Read about historic Bernanke press conference. The Fed is forecasting growth between 3.1% and 3.3% this year, which implies a big pick-up for the rest of the year. But the weak growth in the first three months of the year was certainly one factor in the Fed’s decision not to take any steps this week towards an exit from its ultra-low monetary policy. The weak GDP report also isn’t good news for President Barack Obama and Democrats. Obama’s approval ratings have sunk recently because of the slow recovery. In the past four quarters, the economy has risen 2.3%, not fast enough to generate many new jobs and aggressively cut the unemployment rate. Inflation rose in the first quarter at the fastest pace in over two years. The personal consumption expenditure index rose 3.8% in the first quarter, the fastest pace since the third quarter of 2008. Over the past year, the index is up 1.6%. The core personal consumption index, excluding volatile energy and food prices, rose 1.5% in the first quarter, the fastest since the fourth quarter of 2009. Over the past year, the index is up 0.9%.

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