CNN - Business/Consumer
<i>Jason Armond/Los Angeles Times/Getty Images via CNN Newsource</i><br/>A man shops for sandals at a Ross store on March 17 in Alhambra By CNN Newsource
today at 5:46 AM Published April 9, 2026 6:54 AM
By Alicia Wallace, CNN
(CNN) — Americans kept spending in February — but just enough to keep up with rising prices, new data showed Thursday; however, the Iran war is expected to push costs even higher.
Consumer spending rose 0.5% in February, up from a 0.3% increase in January, according to a shutdown-delayed report released Thursday by the Commerce Department.
But when taking elevated inflation into account, spending rose just 0.1% from January, when it was flat.
Thursday’s report also showed that inflation remained stubbornly higher than typical: The Personal Consumption Expenditures price index – the inflation gauge the Federal Reserve uses for its 2% target rate – climbed 0.4% from January, which held the annual rate at 2.8%.
Excluding food and energy prices, which tend to be quite volatile, the core PCE price index also rose 0.4%, bringing the annual rate to 3% from 2.9% the month before.
“Core prices are actually gaining momentum, up 4.4% annualized the past three months, compared with 3.4% in the past six months … and this is before spillover pressures from the Iran war,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a note to investors. “Goods prices popped 0.7%, the most in about four years, indicating some lingering tariff effects.”
Consumers appeared to dip into the piggy banks to help prop up their spending: The savings rate fell to 4% from 4.5% the month before as inflation-adjusted (or real) after-tax incomes dropped 0.5% for the month.
“The 0.5% fall in real-after tax incomes in February is hard to square with Treasury data pointing to substantial individual tax refunds, but the underlying trend in nominal income growth remains very soft either way,” economists at Pantheon Macroeconomics wrote Thursday.
Tax refunds could bolster incomes in March and April, but the surge in gas prices and other costs could quickly consume those gains, the Pantheon economists noted.
Economists were expecting overall prices to have increased by 0.3% from January, leaving the annual rate of inflation at 2.8%, according to FactSet.
When excluding energy and food, they estimated that the core PCE price index rose 0.4% for the month but that the annual rate would edge down to 3% from the initially reported 3.1% – partly because of comparisons to a period last year when inflation was high.
Weaker economic growth than previously thought
A separate report from the Commerce Department out Thursday showed that US economic growth was weaker than previously reported just a few months before the United States and Israel launched a destabilizing war with Iran.
Gross domestic product, the broadest measure of economic output, grew at an annualized rate of 0.5% in the October-through-December period, down from the second estimate’s 0.7% and much lower than the 1.4% initially reported. The latest estimate factored in new data showing weaker business investment in the fourth quarter, a period when the US government was shut down for a record 43 days.
The battery of new economic data out Thursday coupled with the expectations that inflation will climb higher following war-driven energy and supply shocks suggest that Federal Reserve policymakers may be even less inclined to lower interest rates, BMO’s Guatieri wrote.
“With headline inflation likely to test 4% soon, there is little chance the Fed will ease policy in the near term,” he wrote.
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CNN’s Bryan Mena contributed to this report.
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