US PCE Inflation Set to Remain Well Above Fed Target

The US PCE price index rose by 0.3% from the previous month in January of 2026, aligned with market expectations and slowing slightly from the 0.4% increase from the previous month. Costs of durable goods rose by 0.4% from December's 0.5% jump, offsetting the 0.1% drop in nondurable goods. When excluding energy and food prices, the core PCE price index rose by a sharper 0.4%. From the previous year, the PCE price index rose by 2.8%, easing from the 2.9% increase in the previous month but remaining sharply above the Federal Reserve's 2% target.

The US PCE price index is expected to rise 0.3% month over month in January 2026, slightly below December’s 0.4% increase. The core PCE index, which excludes food and energy, is forecast to rise 0.4%, matching the previous month’s pace. On a year-over-year basis, headline PCE inflation is likely to hold steady at 2.9%, while the core rate is seen edging up to 3.1% from 3%. The PCE price index which is the Federal Reserve’s preferred gauge of inflation, is expected to indicate that progress in bringing inflation down has slowed, with price pressures remaining stubbornly above the Fed’s 2% target.

The US PCE price index rose 0.4% month-over-month in December 2025, following a 0.2% increase in November, the most since February and above market expectations of 0.3%. Prices for goods were up 0.4%, accelerating from 0.1% in November while prices of services rose at a faster 0.3%, compared with 0.2% in November. Core PCE, which excludes food and energy, increased 0.4%, also above forecasts of 0.3%. Separately, prices for food rose 0.4% and cost for energy goods and services went up 0.2%, easing from a 1.7% rise. On an annual basis, headline PCE inflation accelerated to 2.9% from 2.8%, above forecasts of 2.8%. Core PCE inflation also edged up to 3% from 2.8% in November and above expectations of 2.9%. The PCE index remains the Federal Reserve’s preferred inflation gauge.