The Fed lifted its overnight interest rate by a quarter of a percentage point in March and has forecast two more hikes this year. The consumer spending data was included in last Friday's first-quarter gross domestic product report, which showed consumer spending increasing at a 0.3 percent annual rate - the slowest pace since the fourth quarter of 2009.
Consumer spending accounts for more than two-thirds of U.S. economic activity. The economy grew at a 0.7 percent rate in the first quarter, the worst performance in three years.
The personal consumption expenditures (PCE) price index excluding food and energy slipped 0.1 percent, the first and largest drop since September 2001, after increasing 0.2 percent in February. In the 12 months through March, the so-called core PCE price index increased 1.6 percent, the smallest gain since last July, after advancing 1.8 percent in February.
The core PCE is the Fed's preferred inflation measure. The U.S. central bank has a 2 percent target.
"We view the drop in the core PCE price index in March as an aberration and we expect the core inflation rate to creep upwards over the coming months," said John Ryding, chief economist at RDQ Economics in New York.
The overall PCE price index fell 0.2 percent in March. That was the first decline since February 2016 and the biggest drop since January 2015. In the 12 months through March the PCE price index increased 1.8 percent after rising 2.1 percent in February.
With price pressures subsiding, inflation-adjusted consumer spending increased 0.3 percent in March, ending two straight months of decline. March's increase in real consumer spending sets it up for an acceleration in the second quarter.
Consumption will likely be supported by a pick-up in wage growth. A report on Friday showed private sector wages recorded their biggest increase in 10 years in the first quarter.
Overall consumer spending in March was constrained by a 0.7 percent drop in purchases of long-lasting goods such as automobiles. A cold snap boosted demand for heating, lifting spending on services by 0.4 percent.
Personal income gained 0.2 percent in March after rising 0.3 percent in February. Income at the disposal of households after accounting for inflation increased 0.5 percent, the biggest gain since December 2015. Savings increased to a one-year high of $849.1 billion from $819.0 billion in February.
—CNBC's Lauren Thomas contributed to this report.