The Commerce Department reported that the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index, rose 0.3% in January 2026, maintaining elevated consumer price pressures. On a year-over-year basis, the PCE index increased 2.8%, slightly below economists’ expectations of 2.9%, according to a poll by LSEG.
Core Inflation Measures and Price Trends
Core PCE inflation, which excludes food and energy prices, increased 0.4% month-over-month and 3.1% year-over-year, aligning with economists’ estimates. This core measure is closely monitored by Federal Reserve policymakers as a key indicator of underlying inflation trends. Compared to December’s readings, headline PCE inflation eased marginally from 2.9% while core inflation rose from 3%.
Goods prices rose 1.3% annually in January, down from 1.7% in December, with durable goods prices up 2.2% year-over-year. Nondurable goods prices grew by 0.8%, the lowest annual increase since August. Services prices increased 3.5% year-over-year, slightly higher than the 3.4% rate recorded from September through December.
Economic Indicators and Fed Outlook
January’s personal savings rate reached 4.5%, higher than the 4% average from October to December and the highest since July. Economists highlighted inflation and recent energy price increases as ongoing concerns for monetary policy. Raymond James chief economist Eugenio Aleman noted inflation remains a challenge despite positive income and consumption figures.
Jeffrey Roach, chief economist at LPL Financial, commented that monthly inflation readings would need to stabilize around 0.1%-0.2% to signal contained inflation risks. He added that inflation pressures and labor market disruptions related to the Middle East conflict could influence upcoming economic data and Federal Reserve decisions.
Upcoming Federal Reserve Meeting
The Federal Open Market Committee is scheduled to meet on March 17-18 to decide on interest rates. Market expectations, as indicated by the CME FedWatch tool, predict a 99.1% probability that the Fed will keep the benchmark federal funds rate steady between 3.5% and 3.75%, unchanged from a week earlier and up from 90.8% a year ago.
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