Economy April 9, 2026 08:54 AM

U.S. PCE inflation accelerated in February as consumers continued to spend

Core and headline PCE rose 0.4% in February; consumer outlays picked up, complicating the Fed's path to rate cuts

By Maya Rios
U.S. PCE inflation accelerated in February as consumers continued to spend

Personal consumption expenditures inflation rose 0.4% in February, matching economists' expectations, while core PCE also climbed 0.4% for a third consecutive month. Year-over-year headline PCE was 2.8% and core PCE stood at 3.0%. Consumer spending strengthened with a 0.5% monthly increase, supported in part by large tax refunds even as higher energy prices and recent geopolitical conflict are likely to add further upward pressure on prices.

Key Points

  • Headline PCE inflation rose 0.4% in February, with 12-month headline inflation at 2.8%. - Affects monetary policy and fixed-income markets.
  • Core PCE (excluding food and energy) increased 0.4% in February and was 3.0% year-over-year. - Relevant for the Federal Reserve's 2% target and interest-rate expectations.
  • Consumer spending strengthened, rising 0.5% in February, supported by large tax refunds even as higher gasoline prices squeeze budgets. - Impacts retail, energy, and consumer discretionary sectors.

WASHINGTON, April 9 - U.S. inflation rose as expected in February, with the Federal Reserve's preferred gauge, the personal consumption expenditures (PCE) price index, increasing 0.4% following an unrevised 0.3% gain in January, the Commerce Department's Bureau of Economic Analysis said on Thursday.

On a 12-month basis through February, headline PCE inflation advanced 2.8%, unchanged from the year-earlier reading in January. The BEA is still working through delayed data releases tied to last year's government shutdown.

Inflation pressures were already elevated before the recent conflict in the Middle East, a trend the data attribute in part to import duties implemented under President Donald Trump's administration. The U.S.-Israel war with Iran pushed global oil prices higher and drove the national average retail gasoline price above $4 per gallon for the first time in more than three years. That spike, together with trade and shipping disruptions, is expected to amplify inflationary pressures in subsequent months.

Economists said the impacts of the conflict, which began at the end of February, would be more visible in March's inflation statistics. On Tuesday, President Trump announced a two-week ceasefire subject to Tehran reopening the blockaded Strait of Hormuz - a development that has also affected shipments of fertilizers and other goods, and is expected to put upward pressure on food prices.

Excluding food and energy, the so-called core PCE price index rose 0.4% in February, marking the third consecutive month with that monthly gain. On an annual basis, core PCE inflation was 3.0% in the 12 months through February, down from 3.1% in January. The moderation in year-on-year core inflation reflects the effect of last year's higher readings falling out of the 12-month calculation.

The Federal Reserve monitors the PCE measures as its benchmark for the 2% inflation objective. Forecasters note that monthly PCE inflation would need to consistently register around 0.2% to move inflation back toward that target.

Minutes from the Fed's March 17-18 policy meeting, released on Wednesday, indicated that an increasing number of policymakers believed further interest rate increases might be necessary to contain inflation. The minutes also stated that participants observed a prolonged conflict in the Middle East would likely result in more persistent increases in energy prices, with those higher input costs more likely to pass through to core inflation.

The central bank left its policy rate unchanged in a range of 3.50% to 3.75% at that meeting. Following the developments and data, the likelihood of a rate cut this year has fallen substantially.


High energy prices contributed to some of the uptick in consumer spending in February. Personal consumption expenditures - which make up more than two-thirds of U.S. economic activity - rose 0.5% after a 0.3% increase in January, matching economists' expectations for a 0.5% advance.

Rising gasoline costs could divert household outlays away from other categories. At the same time, unusually large tax refunds this year may have provided some financial relief to lower-income households and supported their spending. Meanwhile, the conflict's effect on financial markets has been substantial: the war erased roughly $3.2 trillion in market capitalization in March, a loss that could prompt wealthier households - who have been the principal drivers of consumption and the broader economy - to curtail spending.


Beyond the headline numbers, the report highlights a combination of factors that complicate the inflation outlook: a recent escalation in geopolitical tensions that has pushed up energy and commodity prices, lingering effects from previous policy actions that raised import costs, and shifts in household spending patterns influenced by both gasoline prices and fiscal flows such as tax refunds. These dynamics inform Federal Reserve deliberations and shape expectations for the timing and scale of future monetary policy moves.

Separately, the report's timing and interpretation are affected by ongoing data release catch-up work at the BEA, which may influence how quickly policymakers and market participants see the full effects of recent developments in subsequent monthly releases.

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Risks

  • Prolonged conflict in the Middle East could sustain higher energy prices, feeding through into core inflation and complicating Fed policy - risk to energy and broader inflation-sensitive sectors.
  • Supply disruptions, including a blockaded Strait of Hormuz affecting fertilizer and other shipments, may push food and input costs higher - risk to agriculture and industrial supply chains.
  • A sharp decline in financial markets - about $3.2 trillion wiped off market value in March - may reduce spending by wealthier households and weigh on economic growth and consumer-facing industries.

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