The price index for personal consumption expenditure (PCE) in March rose 2 percent from a year ago, said the Commerce Department on Monday.
Purchases rose 0.4 percent from the prior month, the Commerce Department figures showed - but consumer spending grew at a 1.1 percent annualized rate between January and March, which was the slowest in almost five years.
US inflation hovered near the mark for years, but finally reached 2 percent in March.
Annual inflation readings in March of previous year were held down by large declines in the price of cell phone service plans.
Excluding the volatile food and energy components, the PCE price index soared 1.9 per cent in the 12 months through March, the biggest increase since February 2017, after increasing 1.6 per cent in February.
Incomes rose 0.3% from the prior month, the same as February and less than the projected 0.4% gain; adjusted for taxes and inflation, disposable income was up 0.2% after a 0.1% rise.
The uptick in inflation won't knock policymakers off their path of gradual increases in interest rates, although it will eventually prompt them to pencil in four hikes for this year instead of the three now forecast, said Peter Hooper, chief economist for Deutsche Bank Securities in NY.
The Federal Reserve will announce its latest monetary policy decision on Wednesday, though this announcement is widely expected to keep its interest rate policy unchanged in a range of 1.5%-1.75%. The so-called core PCE price index rose 0.2 month-on-month in March after a similar gain in February.
If inflation does rise above 2 percent on a sustained basis, then the Fed will effectively be missing on both sides of its mandate.
Fed officials will hold a regular meeting this week. Based on that measure, the economy slowed in the first quarter. Market investors are expecting that the central bank might raise interest rates by a total of four times this year. With spending outpacing income, savings fell to $460.6 billion last month from $483.1 billion in February. The MNI Chicago Business Barometer rose 0.2 points to a reading of 57.6 in April, ending three straight monthly declines.