Key Takeaways
- January’s core PCE inflation registered 3.1% on an annual basis, exceeding the Federal Reserve’s 2% objective
- Core PCE increased 0.4% month-over-month, matching economist projections
- Overall PCE inflation stood at 2.8% year-over-year, marginally under the anticipated 2.9%
- Financial markets anticipate the Federal Reserve will maintain interest rates between 3.5% and 3.75% at the upcoming policy meeting
- The January figures don’t account for the Iran crisis, which has elevated crude oil costs and created uncertainty around future inflation trends
On March 13, 2026, the Bureau of Economic Analysis published personal consumption expenditures (PCE) figures for January. This metric serves as the Federal Reserve’s primary gauge for measuring inflationary pressures.
The core PCE measure, excluding volatile food and fuel components, climbed 3.1% compared to the same period last year. This figure aligned with analyst projections while accelerating from December’s 3.0% reading. The monthly increase registered 0.4%, also conforming to forecasts.
Overall PCE inflation — encompassing all consumer goods and services — advanced 2.8% on a yearly basis. This undershot the consensus estimate of 2.9% and represented a deceleration from the previous month’s rate.
On a monthly basis, total PCE expanded 0.3%, in accordance with predictions.
The Federal Reserve maintains an inflation objective of 2%. With core PCE currently at 3.1%, consumer prices remain substantially elevated relative to the central bank’s desired level.
Markets anticipate the Fed will maintain its benchmark rate in the 3.5% to 3.75% range when officials convene next week. Rate reductions appear unlikely in the near term given the stubborn inflation readings.
PCE measurements have consistently exceeded the alternative Consumer Price Index published by the Labor Department. This divergence stems primarily from differing methodologies for calculating housing and healthcare expenses. PCE assigns lower importance to shelter expenses, which have moderated recently, while allocating greater weight to medical costs, which have accelerated.
February’s CPI registered 2.4% annually — a comparatively subdued figure.
Missing from the Numbers
The January data captures economic activity from over a month prior. It excludes the ramifications of the Iran crisis, which commenced with U.S. and Israeli military operations in late February.
Oil prices have surged considerably following the outbreak of hostilities. Elevated energy expenses typically fuel inflation in subsequent months.
The economic landscape is further muddled by extensive tariff implementations and substantial corporate capital allocation toward artificial intelligence initiatives. Both factors are influencing economic activity but remain difficult to measure accurately in the present moment.
Paul Ashworth, Chief North America Economist at Capital Economics, observed that the United States functions as a net petroleum exporter, potentially limiting the damage from rising crude prices. He emphasized that while elevated energy costs might initially constrain consumer purchasing power, any corresponding investment boost would materialize gradually.
Consumer spending advanced 0.4% in January versus the preceding month, surpassing forecasts. Personal income expansion, conversely, decelerated modestly.
Looking Ahead
Gross domestic product for the fourth quarter of 2025 underwent a significant downward revision to merely 0.7%.
Ashworth anticipates economic acceleration during the first quarter of 2026, attributable in part to diminishing headwinds from a late-2025 government shutdown.
The Federal Reserve’s upcoming interest rate announcement is scheduled to follow a two-day policy meeting next week. Current market indicators suggest rates will remain unchanged.
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