Core Inflation and Economic Growth Data Before Iran War

Core inflation remained above the Federal Reserve’s target before the recent surge in energy prices, as indicated by a key gauge released Thursday. This gauge provides the central bank with a snapshot of conditions leading into the conflict with Iran.

The core personal consumption expenditures price index, which excludes food and energy, increased by 3% in February, according to the Commerce Department. The all-items headline inflation measure also rose to 2.8%.

Both readings were in line with expectations. The core annual inflation rate saw a slight decrease from January, while the headline rate remained unchanged. On a monthly basis, both core and headline prices rose by 0.4%, meeting forecasts.

The Federal Reserve uses the PCE price index as its primary tool for measuring and forecasting inflation. The central bank, which targets 2% inflation, considers core inflation as a better indicator of long-term trends.

In addition to the inflation data, the report also revealed a 0.5% increase in consumer spending for the month, while personal income fell by 0.1%. Economists had anticipated a 0.6% rise in spending and a 0.4% increase in income.

Separately, the Commerce Department reported that economic growth for the fourth quarter of 2025 was slower than previously estimated.

The Gross Domestic Product (GDP) rose by just 0.5% on a seasonally adjusted annualized rate, down from the initial estimate of 1.4%. The downward revision was primarily due to lower investment levels than previously indicated.

David Russell, global head of market strategy at TradeStation, commented on the data, stating that the figures suggest stagflation was slightly worse than expected even before the Iran conflict. He noted that parallels to the 1970s may be emerging as investors assess the fragile ceasefire.

The inflation data covers the period before the outbreak of war with Iran, and thus does not reflect the significant surge in energy prices that occurred during the conflict. While Fed officials typically view such price spikes as temporary, the current environment remains uncertain.

Market expectations suggest that the Fed will maintain interest rates, given the steady but slowing labor market. Recent jobless claims data showed a slight increase, though it remained consistent with recent trends.

Inflation has exceeded the Fed’s target for five consecutive years, but officials remain optimistic that it will gradually decline over time.

A more recent update on prices is expected with the release of the March consumer price index by the Bureau of Labor Statistics. Estimates indicate a monthly surge of 0.9% in headline prices, pushing the inflation rate to 3.3%. The core CPI is projected to increase by 0.3% monthly and 2.7% annually.

Correction: Consumer spending rose 0.5% in February and income fell 0.1%. An earlier version had incorrect figures.