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US consumer spending, core PCE inflation firmer in January
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US consumer spending, core PCE inflation firmer in January
Mar 13, 2026 5:56 AM

WASHINGTON, March 13 (Reuters) - U.S. consumer spending increased slightly more than expected in January, which together with continued strength in underlying inflation and the dragging war in the Middle East bolstered economists' views that the Federal Reserve would not resume cutting interest rates for some time.

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.4% after increasing by the same margin in December, the Commerce Department's Bureau of Economic Analysis said on Friday. Economists polled by Reuters had forecast consumer spending advancing 0.3% after a previously reported 0.4% increase in December. 

The BEA is still catching up on data releases following delays caused by last year's government shutdown. 

Consumption could take a hit from the U.S.-Israeli war against Iran, which has boosted oil prices. Retail gasoline prices have soared more than 20% to $3.60 per gallon since the conflict started, data from motorist advocacy group AAA showed. 

The war is also causing volatility on the stock market, with economists warning of wealth reduction among higher-income households that could force some to cut back on spending. High-income households are the main drivers of consumer spending and the overall economy. Lower-income households have already scaled back as tariffs on imports raised prices for goods. 

Economists expected the drag on the economy would be felt in the second quarter. 

"Gasoline prices in the U.S. are poised to rise to around $3.75 per gallon nationally in the coming weeks, and it could take much of the year to trend back to pre-conflict prices near $3 per gallon," said Kathy Bostjancic, chief economist at Nationwide. "The spike in diesel fuel prices will feed into higher transportation costs and could lift price pressures across the supply chain. Further, the disruption of agricultural fertilizer shipments will place upward pressure on food prices."

Inflation was already elevated before the war. The Personal Consumption Expenditures price index increased 0.3% in January after rising 0.4% in December, the BEA said.

In the 12 months through January, PCE inflation advanced 2.8% after rising 2.9% in December.

Excluding the volatile food and energy components, the PCE price index rose 0.4% after a similar gain in December. Economists had forecast the so-called core PCE inflation increasing 0.4% in January. Core PCE inflation climbed 3.1% year-on-year after rising 3.0% in December.

The U.S. central bank tracks the PCE inflation measures for its 2% target. The Fed is expected to keep its benchmark overnight interest rate in the 3.50%-3.75% range next Wednesday. Economists see the window for rate cuts closing, with financial markets anticipating a single reduction this year in September.

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