Research
March 13, 2026
PCE Deflator
Consumer inflation accelerated in January, with core prices up 3.1% year-over-year
The Personal Consumption Expenditures (PCE) deflator—the Federal Reserve’s preferred inflation gauge—rose 0.3% in January, easing a bit from 0.4% growth in December. Food prices eased from 0.4% growth in December to 0.2% in January, while energy costs declined 1.7%, the largest monthly decline since July. Core PCE, which excludes food and energy, increased 0.4% for the second straight month.
Year-over-year, the headline PCE deflator edged down from 2.9% in December to 2.8% in January. Yet, core PCE inflation rose 3.1% over the past 12 months, up from 3.0% in December and the highest reading since March 2024.
These data highlight two dynamics. First, as noted above, consumer inflation has trended higher in recent months, rising to rates not seen in nearly two years, even with notable moderation from post‑pandemic highs. Over the past 25 months—since the beginning of 2024—core inflation has averaged 2.9%. Both headline and core inflation remain well below their peaks of 7.1% (June 2022) and 5.5% (September 2022), even as progress toward the Federal Reserve’s 2% target remains incomplete.
These results put the Federal Reserve in a difficult position. Employment concerns and signs of softness in the economy would seem to put weight on lowering interest rates to stimulate economic growth, and yet, inflationary pressures remain stubborn, with risks that prices could move higher in the near term. With that in mind, the Federal Open Market Committee is likely to keep policy steady at its March 17–18 meeting while it waits for additional data. Further rate reductions are still possible in 2026 but are unlikely before mid‑year at the earliest.
Beyond the inflation figures, personal consumption expenditures rose 0.4% in January for the second consecutive month, continuing to post solid gains despite ongoing economic uncertainties. However, spending at foodservices and accommodations edged down 0.1% in January, offsetting the 0.1% increase in December. Over the past year, total personal spending has grown a healthy 5.3%, while expenditures on foodservices and accommodations are up 3.9% since January 2025—signaling resilient consumer demand even with persistent headwinds and softer readings in the past two months..
Part of this growth reflects higher prices, even as real spending continues to advance at a more modest pace. Inflation-adjusted personal consumption inched up 0.1% in December, with 2.4% growth year-over-year. Real spending on foodservices and accommodations rose just 0.8% over the past year. Even after accounting for inflation, consumers are allocating more toward dining and travel, a positive sign for those sectors, albeit at a much softer pace than many would prefer.
Personal income rose 0.4% in January, increasing for the eighth straight month. Personal income grew 4.4% over the past 12 months. Wages, which have been a large contributor to the economy’s resilience, increased 0.5% in December, with 4.6% growth year-over-year.
The personal savings rate rose from 4.0% in December to 4.5% in January, a 6-month high. Notably, savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.0% since the start of 2023. Moreover, savings over the past nine months have consistently run below that already‑reduced pace.
Year-over-year, the headline PCE deflator edged down from 2.9% in December to 2.8% in January. Yet, core PCE inflation rose 3.1% over the past 12 months, up from 3.0% in December and the highest reading since March 2024.
These data highlight two dynamics. First, as noted above, consumer inflation has trended higher in recent months, rising to rates not seen in nearly two years, even with notable moderation from post‑pandemic highs. Over the past 25 months—since the beginning of 2024—core inflation has averaged 2.9%. Both headline and core inflation remain well below their peaks of 7.1% (June 2022) and 5.5% (September 2022), even as progress toward the Federal Reserve’s 2% target remains incomplete.
These results put the Federal Reserve in a difficult position. Employment concerns and signs of softness in the economy would seem to put weight on lowering interest rates to stimulate economic growth, and yet, inflationary pressures remain stubborn, with risks that prices could move higher in the near term. With that in mind, the Federal Open Market Committee is likely to keep policy steady at its March 17–18 meeting while it waits for additional data. Further rate reductions are still possible in 2026 but are unlikely before mid‑year at the earliest.
Beyond the inflation figures, personal consumption expenditures rose 0.4% in January for the second consecutive month, continuing to post solid gains despite ongoing economic uncertainties. However, spending at foodservices and accommodations edged down 0.1% in January, offsetting the 0.1% increase in December. Over the past year, total personal spending has grown a healthy 5.3%, while expenditures on foodservices and accommodations are up 3.9% since January 2025—signaling resilient consumer demand even with persistent headwinds and softer readings in the past two months..
Part of this growth reflects higher prices, even as real spending continues to advance at a more modest pace. Inflation-adjusted personal consumption inched up 0.1% in December, with 2.4% growth year-over-year. Real spending on foodservices and accommodations rose just 0.8% over the past year. Even after accounting for inflation, consumers are allocating more toward dining and travel, a positive sign for those sectors, albeit at a much softer pace than many would prefer.
The personal savings rate rose from 4.0% in December to 4.5% in January, a 6-month high. Notably, savings rates in the post‑pandemic period remain well below historical norms. Prior to the pandemic, the savings rate averaged 6.5% from 2017 to 2019, compared with an average of just 5.0% since the start of 2023. Moreover, savings over the past nine months have consistently run below that already‑reduced pace.