U.S. Core Inflation Stable at 3% as Consumer Spending Unexpectedly Declines in February

U.S. core inflation was unchanged at 3% in February, based on the Personal Consumption Expenditures (PCE) price index reported by the Commerce Department on Thursday. The core measure strips out food and energy, and the reading arrived ahead of a sharp rise in energy prices that followed the onset of the Iran war.

The broader, all-items PCE inflation rate was reported at 2.8% for February. The Federal Reserve treats the PCE price index as its main inflation yardstick and has a 2% target, making the latest figures a key reference point for policymakers and investors tracking the path of price pressures.

Both the core and headline February readings matched Dow Jones consensus expectations, according to the report. On a month-to-month basis, core prices rose 0.4% and headline prices also increased 0.4%, with both monthly gains likewise in line with forecasts.

The same Commerce Department release pointed to softer consumer activity during the month. Consumer spending fell 0.1% in February, a result described as unexpected, while personal income increased 0.4%.

Economists had anticipated a stronger spending outcome, with projections calling for a 0.6% increase. The divergence between spending and income in the February data adds another data point for markets assessing the balance between household demand and inflation dynamics, particularly as energy costs later moved higher after the Iran war began.

The Commerce Department also updated its view of economic growth for late 2025. It revised fourth-quarter 2025 Gross Domestic Product growth down to 0.5% at a seasonally adjusted annualized rate, compared with a prior estimate of 0.7% and an initial estimate of 1.4%.

For global markets, the combination of steady core inflation, a modest headline rate, and weaker-than-expected spending can influence expectations around U.S. interest rates and the dollar, given the Federal Reserve’s reliance on PCE. At the same time, the report’s timing—before the subsequent energy-cost surge tied to the Iran war—highlights an important uncertainty: the February inflation snapshot may not reflect later price pressures associated with higher energy costs.