Consumer spending in the United States rose solidly at the start of the year while underlying inflation remained firm, data showed Friday, reinforcing expectations that the Federal Reserve may delay interest rate cuts amid mounting global uncertainties.
Figures from the U.S. Department of Commerce showed that consumer spending increased 0.4 percent in January, matching December’s gain and exceeding economists’ expectations for a 0.3 percent rise.
The increase highlights the continued resilience of household consumption, which accounts for more than two-thirds of U.S. economic activity.
At the same time, inflation remained elevated. The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 0.3 percent in January following a 0.4 percent increase in December.
On an annual basis, PCE inflation slowed slightly to 2.8 percent, down from 2.9 percent the previous month.
However, the core PCE index, which excludes volatile food and energy prices, increased 0.4 percent in January and 3.1 percent year-on-year, marking the fastest annual rise since March 2024.
The persistent strength in underlying inflation has complicated the outlook for monetary policy, with many economists now expecting the Federal Reserve to delay interest rate cuts until later in the year.
“The data suggest inflation pressures remain stronger than policymakers would like,” analysts said, noting that the central bank is likely to remain cautious before easing borrowing costs.
The inflation data come against the backdrop of growing geopolitical tensions following the Iran–Israel conflict, which has disrupted energy markets and pushed fuel prices higher.
Retail gasoline prices in the United States have climbed more than 20 percent to about US$3.60 per gallon since the conflict escalated, according to data from the AAA, a U.S. motorists association.
Rising energy costs are expected to add pressure to inflation in the coming months while also weighing on consumer spending.
Economists warn that higher fuel prices could reduce disposable income for households and dampen economic activity if sustained.
The Commerce Department data also painted a mixed picture for the broader economy.
Orders for non-defense capital goods excluding aircraft, a closely watched measure of business investment, were unchanged in January.
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Shipments of those goods — used to calculate equipment spending in gross domestic product — fell 0.1 percent, suggesting business investment could weaken in the months ahead.
Separately, revised figures showed the U.S. economy expanded at a much slower pace at the end of last year than previously estimated.
Gross domestic product grew at an annualized rate of 0.7 percent in the fourth quarter, down from an earlier estimate of 1.4 percent.
The slowdown followed much stronger growth of 4.4 percent in the third quarter, highlighting a sharp deceleration in economic momentum.
Analysts say a combination of slower consumer spending late last year, weaker business investment, and reduced government spending contributed to the slowdown.
The revised data also reflect disruptions caused by last year’s prolonged U.S. government shutdown, which delayed several economic reports and temporarily affected federal spending.
Economists are increasingly warning that the economy could face a difficult balance between slowing growth and persistent inflation — a situation often described as stagflation.
Some analysts expect these pressures to intensify in the coming months as geopolitical tensions affect energy prices and global trade.
Higher oil prices, weaker exports due to disruptions in international markets, and declining business confidence could weigh on growth in the second quarter, economists said.
Financial markets reacted cautiously to the latest data.
U.S. stocks opened mixed on Friday, while the dollar strengthened against a basket of currencies. U.S. Treasury yields edged lower as investors weighed the outlook for interest rates and economic growth.
Despite the uncertainties, consumer spending remains a key pillar supporting the world’s largest economy.
But economists say the outlook will increasingly depend on how inflation, energy prices, and geopolitical tensions evolve in the months ahead.
