A key measure of U.S. inflation remained stubbornly above the Federal Reserve’s target in February, official data showed Thursday, underscoring price pressures in the economy even before the recent surge in global energy costs triggered by the war with Iran.
The core personal consumption expenditures (PCE) price index, which strips out food and energy and is closely watched by the Fed, rose 3.0 percent year-on-year in February, according to data from the Commerce Department. The broader headline measure increased 2.8 percent, while both gauges rose 0.4 percent on the month.
The figures matched market expectations but highlighted the challenge facing policymakers as inflation remains well above the Fed’s 2 percent target. Because the data covers the period before the outbreak of the U.S.-Iran conflict, it does not yet reflect the jump in oil and gasoline prices that followed the war.
The inflation report also pointed to softer underlying economic momentum. Consumer spending rose 0.5 percent in February, while personal income fell 0.1 percent, suggesting household demand may be weakening even as prices stay elevated. Economists had expected stronger income growth, making the report another sign of strain in the world’s largest economy.
Separately, revised data showed the U.S. economy grew at a slower pace than previously estimated in the final quarter of last year. The Bureau of Economic Analysis had earlier placed fourth-quarter growth at 0.7 percent, already sharply down from the prior quarter, reflecting softer exports, consumer spending, government outlays and investment.
Analysts said the combination of sticky inflation and slowing activity has sharpened concerns about stagflation, a scenario in which growth weakens while prices remain high. Those fears have only intensified with the latest geopolitical tensions, which have driven up energy costs and clouded the inflation outlook.
“February prices were broadly in line, but income was weak and growth was already losing steam before the war shock,” one market strategist said, pointing to the risk that policymakers may have less room to support the economy if inflation proves persistent.
The latest numbers are likely to reinforce the Fed’s cautious stance on interest rates. Minutes from the central bank’s March meeting, released this week, showed officials were already worried about the potential inflationary impact of conflict in the Middle East and the risk of higher oil prices feeding into broader consumer costs. Policymakers signaled that while rate cuts may still come later in the year, they are in no hurry to act.
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At the same time, the U.S. labor market continues to show resilience, giving the Fed some justification to remain on hold. Separate data from the Labor Department on Thursday showed initial jobless claims rose by 16,000 to 219,000 in the week ending April 4, a modest increase that still points to a relatively stable employment backdrop.
Investors are now turning their attention to the next major inflation reading, with March consumer price data due Friday. Analysts expect a much sharper increase in headline inflation, driven largely by higher fuel prices after the war-related energy shock. That report will offer a more current snapshot of how geopolitical turmoil is feeding into the U.S. economy.
For now, Thursday’s figures suggest the Fed was already facing a difficult balancing act before the conflict began: inflation that was proving sticky, growth that was losing momentum, and consumers beginning to show signs of strain. The Iran war has only made that policy challenge more complicated.
