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(Bloomberg) -- Consumer spending was weaker than expected again in February while a key inflation metric picked up, in a double whammy for the economy before the brunt of tariffs.
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Inflation-adjusted consumer spending edged up 0.1%, on the low end of economists’ estimates, after a slump January that analysts mostly blamed on bad weather. Notably in February, Americans reduced spending on services for the first time in three years in the face of higher prices — including on dining out.
“Consumers are resistant to price increases,” Neil Dutta, head of US economics at Renaissance Macro, said in a note. “Ultimately, inflation boils down to a household’s budget constraint and conditions are deteriorating here.”
The Federal Reserve’s preferred inflation rose 0.4% from January, the most in a year, according to Bureau of Economic Analysis data out Friday. The so-called core personal consumption expenditures price index, which excludes food and energy items, was up 2.8% from last year, remaining stubbornly above the Fed’s 2% target.
The S&P 500 opened lower and Treasury yields were also down. Swaps traders continued to price in about two quarter-point reductions this year, with the first seen coming in July.
The report points to sticky inflation just as President Donald Trump’s planned tariffs risk stoking price pressures even further. His aggressive trade policy — which has tanked sentiment among businesses and consumers — combined with growing signs of household financial stress, has raised concerns that the economy may fall into stagflation or even recession.
The Fed’s own forecasts underscore those fears, as policymakers signaled slower growth and faster inflation in fresh projections released at last week’s policy meeting. Chair Jerome Powell downplayed those concerns, even reviving the loaded word “transitory” to describe his expectations for tariff-driven inflation. Some of his colleagues have expressed greater caution.
Officials are holding interest rates steady until they have a better sense of Trump’s policies — particularly tariffs, ahead of next week’s big rollout that the president has dubbed “Liberation Day.” While Trump imposed some levies on China last month, they didn’t seem to have much of an impact on price data, as consumer and producer prices both stepped down in February.