The Federal Reserve’s major inflation measures rose more than expected in February, but consumer spending also showed unpromoted increases, the Commerce Department reported Friday.
The Core Personal Consumption Expense Price Index marks the month’s biggest monthly increase since January 2024, 0.4% increase, bringing the 12-month inflation to 2.8%. Economists surveyed by Dow Jones were looking for 0.3% and 2.7% of the numbers, respectively.
Core inflation excludes volatile food and energy prices and is generally considered a better indicator of long-term inflation trends.
In all-item measurements, the price index rose 0.3% that month and 2.5% year-on-year, both of which are in line with forecasts.
At the same time, the Bureau of Economic Analysis report showed that consumer spending accelerated the month’s 0.4% higher than forecasts below 0.5%. That came when personal income increased by 0.8% versus an estimated 0.4%.
Stock market futures moved temporarily low after release, as did the Treasury yield.
Federal Reserve officials are focusing on reading PCE inflation as they adjust for changes in consumer behavior and consider it a broader measure that focuses less on housing than the Labor Bureau’s consumer price index. Shelter costs are one of the more sticky components of inflation, rising by 0.3% on the PCE scale.
“We’re excited to be a part of our team,” said Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management. “The inflation readings exceeded today’s expectations were not very hot, but it won’t speed up the Fed’s timeline to cut interest rates, especially given the uncertainty surrounding tariffs.”
Good prices increased by 0.2%, and 0.5%, led by recreational goods and vehicles. Petrol offsets some of the increase, with the category down by 0.8%. Service prices rose 0.4%.
Additionally, households have become more cautious with money as individual savings rates increased to 4.6%, the highest since June 2024.
The report comes with a market in which President Donald Trump’s tariff intent worsens inflation at a time when data is slowly and steadily progressing back to the Fed’s 2% target.
After cutting in 2024, the central bank has been fully put on hold this year, expressing late concerns about the impact of import duties on prices. While economists tend to view tariffs as a one-off event that cannot withstand long-term inflationary pressures, the scope of Trump’s tariffs and the potential for an aggressive world trade war are changing interests.