The Fed’s favorite inflation indicator – Core PCE (a measure of price changes in consumer goods and services that excludes volatile food and energy costs) – rose 0.4% MoM in February (pre-war), in line with expectations, with YoY rising 3.0% (as expected – lowest since Dec), down from January’s +3.1%…
Source: Bloomberg
The YoY Core decline is coming off January’s highest level since March 2024, with Services cost inflation slowing notably…
The headline PCE also rose 0.4% MoM (as expected – the biggest MoM rise since Feb 2025), up 2.8% YoY (also as expected)…
Source: Bloomberg
Under the hood, we saw a notable jump in non-durable goods prices…
Source: Bloomberg
For those worried about the impact of crude oil’s recent surge (since the start of the Iran war), it appears – somehow – that PCE’s Energy component has already front-run some of the move but there’s a lot more pain to come for March…
Source: Bloomberg
Higher prices were met with lower incomes (-0.1% MoM vs +0.3% MoM exp) and higher spending (+90.5% MoM vs +0.6% MoM exp)…
Source: Bloomberg
Income growth is slowing significantly while spending is accelerating…
Source: Bloomberg
Adjusted for inflation, real spending rose 2.5% YoY – the highest since Oct 2025…
Source: Bloomberg
After jumping from 3.9% to 4.5% in January, Americans’ savings rate dropped back to 4.0% in Feb (after another huge revision in late 2025), basically at the weakest level since Nov 2023…
Source: Bloomberg
So spending solid as incomes fell and prices are rising… but this is all pre-war, so a large pinch of salt is required.
