Underlying Inflation Was Stubborn in January by Fed's Preferred Metric
By Matt Grossman
The Federal Reserve's preferred inflation gauge remained stuck above the central bank's target in January, evidence of the stubborn price increases likely to lead the Fed to keep interest rates on hold next week.
Inflation measured by the personal-consumption expenditures price index was 2.8% in the first month of 2026, down slightly from December. Excluding volatile food and energy prices, core PCE inflation, often looked at as a gauge of underlying price trends, was 3.1%.
Month over month, PCE inflation was 0.3% in January, with a 0.4% rise in core prices.
The numbers aren't likely to revise analysts' understanding of the economy, especially because they predate the Iran conflict, which has sent energy prices sharply higher over the past two weeks. The PCE inflation reading recombines price data published earlier by the Labor Department, so economists can use those numbers to forecast it with great accuracy. The January report ran about two weeks behind schedule, pushed back by cascading delays caused by last fall's government shutdown.
The report illustrates why the Fed is broadly expected to keep interest rates on hold again at its second meeting of the year next week, after pausing rates at 3.5% to 3.75% in January. Although the more-widely followed consumer-price index has moderated in recent months to 2.4%, the Fed's favored gauge has proved more stubborn. That is largely because cooler housing inflation--and a statistical quirk created by last fall's government shutdown--have moderated CPI inflation more than the PCE index.
The Commerce Department's Friday report also showed that individuals' income and spending both increased by 0.4% in January. For much of the past year, consumer spending has been growing at the same rate or faster than income, a sign people have been saving a smaller share of what they earn.
Write to Matt Grossman at matt.grossman@wsj.com
(END) Dow Jones Newswires
March 13, 2026 09:01 ET (13:01 GMT)
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