Key Takeaways
- Annual core PCE inflation reached 3.1% in January, surpassing the Fed’s 2% objective
- Core PCE increased 0.4% on a monthly basis, matching analyst forecasts
- Overall PCE registered 2.8% annually, coming in under the anticipated 2.9%
- Financial markets anticipate the Federal Reserve will maintain interest rates at 3.5%–3.75% during the upcoming policy meeting
- These figures predate the Iran military situation, which has elevated oil prices and introduced uncertainty to inflation forecasts
The Bureau of Economic Analysis published its January personal consumption expenditures (PCE) report on March 13, 2026. This index serves as the Federal Reserve’s primary gauge for measuring inflation trends.
Core PCE, which excludes volatile food and energy components, registered a 3.1% annual increase in January. This figure aligned with analyst projections while accelerating from December’s 3.0% rate. The monthly core PCE advance of 0.4% also met market expectations.
The broader PCE measure — encompassing all consumer goods and services — expanded 2.8% on an annual basis. This came in under the forecasted 2.9% and represented a deceleration from December’s pace.
On a month-to-month basis, overall PCE advanced 0.3%, in line with predictions.
The Federal Reserve maintains a 2% inflation objective. Current core PCE readings of 3.1% indicate prices remain significantly elevated relative to the central bank’s goal.
Markets anticipate the Fed will maintain its current rate range of 3.5% to 3.75% when officials convene next week. Rate reductions appear unlikely in the near term given ongoing inflation pressures.
PCE figures have been recording higher levels than the Labor Department’s Consumer Price Index. This divergence stems primarily from different methodologies in weighting housing and healthcare expenditures. PCE assigns lower importance to shelter expenses, which have been moderating, while giving greater weight to medical costs, which have been climbing.
February’s CPI registered 2.4% year-over-year — a comparatively milder reading.
Recent Developments Beyond the Report
The January figures capture economic activity from over a month prior. These measurements exclude effects from the Iran military conflict, which commenced with U.S. and Israeli strikes in late February.
Oil prices have risen substantially following the onset of hostilities. Elevated oil costs typically contribute to higher inflation in subsequent months.
The economic landscape faces additional complexity from comprehensive tariffs and substantial corporate investment in artificial intelligence. Both factors are influencing the economy, though their full impact remains difficult to measure in current time.
Paul Ashworth, Chief North America Economist at Capital Economics, observed that the U.S. position as a net oil exporter may limit the domestic impact of rising petroleum prices. He explained that while increased energy expenses could initially reduce household purchasing power, any corresponding boost to investment would require time to materialize.
Personal spending rose 0.4% in January compared to the previous month, exceeding projections. Personal income growth, meanwhile, experienced a slight deceleration.
Looking Forward
Fourth-quarter 2025 GDP growth received a significant downward revision to just 0.7%.
Ashworth anticipates economic recovery during the first quarter of 2026, attributing this in part to diminishing effects from a government shutdown that occurred in late 2025.
The Federal Reserve’s upcoming interest rate announcement will follow a two-day policy meeting next week. Current market indicators suggest rates will remain unchanged.
