Fed's preferred inflation gauge shows no gain for March and is up just 1.6% over the past year

A cashier returns cash to a customer at a Vineyard Vines store at the Fashion Outlets of Chicago.

Daniel Acker | Bloomberg | Getty Images

The Federal Reserve's preferred inflation gauge showed no change in March and remained well below the central bank's target, a government report Monday showed. At the same time, consumer spending surge amid a jump in expenditures on motor vehicles and health care.

The core personal consumption expenditures, which strips out volatile food and energy prices, was flat for the month and up 1.6% year over year. The headline number rose 0.2% for a 1.5% increase over the year.

February's results were largely the same.

Get the market reaction here.

The core and headline measures rose just 0.1% for the month, while the core was up 1.7% on the year and the headline rate increased 1.3%.

The PCE deflator is the Federal Reserve's key inflation metric. The central bank considers 2 percent a healthy level for price stability but has failed to hit the target for most of the past decade or so.

Fed officials have said they expect to hold interest rates steady for the rest of the year, due in part to a low inflation rate.

Markets are assigning about a 65 percent chance of a rate cut by the end of the year, though individual Fed members have said they see little change of any loosening in policy ahead.

Deciding the future rate path got a little more complicated last week when a government reported showed that GDP grew by a much stronger than expected 3.2% in the first quarter.

While the price index fell, consumer spending surged to its highest level in 9½ years in March. Consumer spending rose 0.9% overall and 0.7% when adjusted for inflation.

This story is developing. Please check back for updates.

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