TLDR
- January’s core PCE inflation climbed to 3.1% on an annual basis, exceeding the Federal Reserve’s 2% objective
- On a monthly basis, core PCE registered 0.4%, matching analyst projections
- Annual headline PCE reached 2.8%, coming in below the anticipated 2.9%
- Financial markets broadly anticipate the Federal Reserve will maintain interest rates at 3.5%–3.75% during the upcoming policy meeting
- January’s figures don’t reflect the recent Iran conflict impact, which has elevated crude oil prices and created uncertainty for 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 inflation trends.
January’s core PCE measurement, which excludes volatile food and energy components, increased 3.1% compared to the same period last year. This aligned with economist predictions while accelerating from December’s 3.0% reading. The monthly core PCE advance was 0.4%, also consistent with forecasts.
The broader headline PCE metric — encompassing all consumer goods and services — expanded 2.8% on an annual basis. This fell marginally short of the projected 2.9% and represented a deceleration from December’s rate.
On a month-over-month basis, headline PCE advanced 0.3%, in line with analyst estimates.
The Federal Reserve maintains a 2% inflation objective. Current core PCE readings at 3.1% demonstrate that price pressures remain significantly above the central bank’s desired level.
Markets anticipate the Fed will maintain its current rate range of 3.5% to 3.75% at the upcoming policy meeting next week. Given the stubborn inflation readings, interest rate reductions appear unlikely in the near term.
PCE measurements have been registering higher than the Consumer Price Index published by the Labor Department. This divergence stems primarily from different methodological weightings applied to housing and healthcare expenditures. PCE assigns less emphasis to shelter expenses, which have been moderating, while giving greater weight to medical costs, which continue rising.
February’s CPI registered 2.4% annually — a noticeably cooler reading in comparison.
What the Data Doesn’t Capture
January’s economic data represents conditions from over a month in the past. The figures don’t incorporate effects from the Iran conflict, which commenced following U.S. and Israeli military operations in late February.
Oil prices have surged considerably since hostilities began. Elevated crude costs typically translate into higher inflation in subsequent months.
The economic landscape grows more complex when considering widespread tariff implementations and substantial corporate investments in artificial intelligence infrastructure. Both factors are already influencing economic conditions, though their full impact remains difficult to measure in real time.
Paul Ashworth, serving as Chief North America Economist at Capital Economics, observed that the United States functions as a net petroleum exporter, potentially limiting the damage from rising oil prices. He acknowledged that while elevated energy expenses might initially reduce consumer purchasing power, any positive effects on investment would require time to materialize.
Personal spending expanded 0.4% in January versus the previous month, surpassing projections. Meanwhile, personal income growth experienced a modest slowdown.
What Comes Next
GDP growth for the fourth quarter of 2025 underwent significant downward revision to merely 0.7%.
Ashworth anticipates economic acceleration during the first quarter of 2026, partially attributed to diminishing effects from a government shutdown that occurred in late 2025.
The Federal Reserve’s upcoming interest rate announcement is scheduled following a two-day policy meeting next week. Current market indicators suggest rates will remain unchanged.
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