Core inflation remains above the Federal Reserve’s target, as indicated by the latest report from the Commerce Department. The core personal consumption expenditures (PCE) price index, which excludes food and energy, saw a seasonally adjusted increase of 3% in February. Meanwhile, the overall inflation measure rose by 2.8%, aligning with Dow Jones expectations. Notably, the core annual inflation rate dropped 0.1 percentage point compared to January, whereas the headline figure remained unchanged.
On a monthly basis, both core and headline prices registered a 0.4% increase, consistent with forecasts. The Federal Reserve utilizes the PCE price index as a key tool for gauging inflation trends, with a target rate of 2%. Fed officials regard core inflation as a more reliable indicator of long-term trends.
In addition to inflation metrics, consumer spending in February climbed 0.5%, although personal income recorded a slight downturn of 0.1%. Economists had predicted spending would increase by 0.6% and income would rise by 0.4%. Separately, the Commerce Department revealed that economic growth for the fourth quarter of 2025 was even slower than initially reported, with the Gross Domestic Product (GDP) growing at a meager 0.5% on a seasonally adjusted annualized basis. This was a downward revision from previous estimates of 0.7% and 1.4%. The full-year growth rate remained at 2.1%.
The revision was primarily attributed to lower-than-expected investment levels. A crucial demand metric, known as real final sales to private domestic purchasers, was also adjusted downward to a growth rate of 1.8%, representing a 0.6 percentage point drop from the initial estimate.
Market analysts note the implications of this data preceding the recent conflict in Iran. David Russell, global head of market strategy at TradeStation, commented that “February prices were in line, but income was weak and GDP was revised down again,” suggesting that stagflation could be more severe than anticipated. He highlights potential parallels to economic challenges faced in the 1970s as investors assess the current diplomatic landscape.
While the reported inflation figures are somewhat retroactive, they reflect conditions before the outbreak of hostilities involving the U.S. and Israel against Iran, which have since led to a sharp rise in energy prices. At one point, oil prices surged past $100 a barrel, and gasoline prices at the pump increased significantly.
Despite these fluctuations, Fed officials typically regard such price hikes as temporary and not reflective of broader inflation trends. Minutes from the March Fed meeting indicated policymakers are cautious about making definitive commitments on interest rates while monitoring unfolding events. Most Fed officials are expected to adopt a cautious stance, particularly given that the labor market has slowed but continues to generate sufficient job growth to maintain steady unemployment rates.
Recent labor statistics reveal a rise in jobless claims, hitting a seasonally adjusted 219,000—16,000 more than the previous period and above the estimated 210,000, although remaining within familiar trends. Inflation has consistently exceeded the Fed’s goal for five consecutive years, yet officials express optimism about a gradual decline moving forward.
Additional insights into current pricing trends are anticipated as the Bureau of Labor Statistics prepares to release the March consumer price index readings. Analysts project that headline prices will increase by 0.9% for March, pushing the inflation rate to 3.3%, nearly a full percentage point higher than February’s figures. Core inflation is expected to show a 0.3% monthly increase and a 2.7% annual increase.
A correction in the data previously reported notes that consumer spending rose by 0.5% in February, while personal income decreased by 0.1%.
