Core PCE Stays Hot as Spending Outpaces Income — Evening Brief – 04.09.26
U.S. inflation stayed uncomfortably firm in February, with the Federal Reserve’s preferred gauge holding at a monthly pace inconsistent with a quick return to 2% even as consumers spent more than their income growth would suggest. The latest Personal Income and Outlays report points to a still‑resilient consumer, but one increasingly relying on savings and balance sheets to support spending.
The Core PCE Price Index rose 0.4% month over month in February, matching January’s gain and topping expectations for a 0.3% increase. On a year‑over‑year basis, core PCE climbed 3.0%, slightly above the 2.9% consensus and only a touch below January’s 3.1% pace. Core PCE excludes food and energy and is favored by the Fed for tracking underlying inflation trends, which have now run above the 2% target for about five years.
Including food and energy, the headline PCE Price Index rose 0.4% on the month and 2.8% from a year earlier, both in line with economist forecasts and unchanged from January’s 2.8% year‑over‑year rate.
The growth backdrop was more mixed. Personal income dipped 0.1% on the month, a sharp miss versus expectations for a 0.4% gain and down from a 0.4% increase in January, driven largely by lower dividend income and government transfer receipts. Personal outlays, which include consumer spending, rose 0.5%, matching consensus and accelerating from 0.4% previously. The $103.2 billion increase in spending reflected a $58.7 billion rise in goods, led by a $32.6 billion jump in motor vehicles and parts, and a $44.5 billion gain in services, with health care up $15.7 billion and financial services and insurance up $10.4 billion.
Some categories softened: spending on recreation services fell $7.5 billion, and food and beverages declined $7.8 billion. Prices rose the most for recreational goods and vehicles (up 2.2% month over month), gasoline and other energy goods (up 1.4%) and clothing and footwear (up 1.0%), while recreation services was the only category to see a price decline, down 0.5%.
With spending outpacing income, the personal saving rate fell to 4.0% from 4.5% in January and from 5.2% a year earlier, signaling less cushion for households if growth slows or inflation proves stickier than expected.