WASHINGTON — U.S. core PCE inflation rose 3.1% in January from a year earlier while consumer spending increased 0.4% and inflation-adjusted spending edged up 0.1%, according to the Bureau of Economic Analysis’ latest Personal Income and Outlays report, March 13, 2026. The reading matters because core PCE is the Federal Reserve’s preferred inflation gauge, and January’s annual pace remained well above the central bank’s 2% target.
Core PCE inflation remains above the Fed’s target
Headline PCE prices rose 0.3% in January and were up 2.8% from a year earlier, while core PCE, which strips out food and energy, increased 0.4% for the month. Personal income rose 0.4%, disposable personal income climbed 0.9%, and the saving rate moved up to 4.5%, suggesting households entered the year with some income support even as inflation kept eating into purchasing power.
The spending gain was tilted toward services. BEA said the $81.1 billion increase in current-dollar personal consumption expenditures reflected a $105.7 billion jump in services that was partly offset by a $24.6 billion decline in goods. That helps explain why nominal spending looked healthy while real spending barely moved.
Core PCE inflation and real spending point to slower growth
The softer real-spending picture landed the same day as BEA’s second estimate of fourth-quarter GDP, which revised annualized growth down to 0.7% from the initial 1.4%. Final sales to private domestic purchasers, a closely watched measure of underlying demand, were also revised lower to 1.9%, reinforcing the idea that the economy is still expanding but with less momentum.
That combination leaves policymakers with an awkward backdrop: consumer demand has not fallen outright, but it is no longer translating into strong inflation-adjusted growth. January’s 3.1% annual core reading was also the highest since March 2024, a sign that the last mile back to 2% could be uneven.
Core PCE inflation has been a stop-and-start story
The latest reading looks more notable in context. In Reuters’ coverage of the February 2024 PCE report, annual core inflation was running at 2.8% as spending stayed firm. By spring 2025, Reuters reported the March 2025 data had cooled annual core PCE to 2.6%.
January’s move back up to 3.1% does not erase the broader disinflation trend from the 2022 peak, but it does suggest progress has stalled and partly reversed. With BEA scheduled to release February’s personal income and outlays data on April 9, the next report will carry extra weight for investors, Fed officials and consumers trying to gauge whether price pressures are firming again or merely proving noisy at the start of the year.
