PCE Inflation Jan 2026: Personal Income & Outlays

Headline PCE price inflation ticked lower to 2.8% from 2.9% but higher for core PCE to 3.1% from 3.0%.

Mar 13, 2026

Paying more is patriotic!

The review of January data loses some of its value given what is unfolding in March in the Iran War, but PCE inflation was “going nowhere fast” in January with headline PCE ticking slightly lower to 2.8% and Core PCE inflation higher to 3.1% and both still well above target.
PCE was supported by -0.8% in Energy Goods and Services with Food steady at +2.0%. Energy will certainly be moving higher while spiraling costs along the food supplier chain to the kitchen table will also push Food prices higher on a combined range of factors. Freight and logistics costs will be a critical driver even before all the moving parts of fertilizer costs and related supply-demand imbalances.
During 2025, constructive notes in the data mix had been that consumers were generally spending faster than their income was growing (PCE growth > DPI growth). PCE growth is the main supporter of economic expansion, so that helped the macro story. That relationship just shifted to DPI being ahead of PCE this month for the monthly growth trends. We have a chart near the end of this comment on that history. Jan 2026 saw saving rates rise. The challenge to the consumer from here includes the zero-sum impacts from the Iran War even as health care budgets also trend higher on health insurance premiums.
The FedWatch odds of no FOMC action have been rising with June odds at 75% for “no action” and even September sees odds at 54% for no easing. Late October is on the cusp of a move at 49.4%. That was not the Trump playbook to start the year.

The above chart updates the time series for “fed funds minus core PCE.” The PCE inflation metric tends to be a focal point for the FOMC and economists, but the pressure on energy costs (notably electricity and utility piped gas) and food inflation had already been attracting household budget focus and influencing consumer moods in a midterm election year.

At last look, the national retail regular gasoline cost today from AAA was $3.63, or up by over 23% over 1 month. Diesel was $4.89 or up by 34%, and that translates into higher delivery costs, surcharges and inflation – or lower profits for those goods and services providers paying those delivery costs.

The long-term median on the FFER vs. PCE differential is 1.4%, but that has been cut almost in half. In a range of comments, Trump had been demanding an immediate move to negative real fed funds rates by the Fed. He might go radio silent on that topic for a while (is that even possible?) until Warsh is in the seat and the Iran effects sorted out.

Today’s PCE release would not have helped with headline PCE price inflation at 2.8% and Core PCE at 3.1% YoY. The UST curve is not showing confidence right now with the 10Y UST at 4.28% and 2Y UST at 3.73%.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 2.8%) and the 2.5% core PCE median (vs. current 3.1%). That 2.8% headline PCE is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target.

The Jan 2026 PCE numbers are at reasonable levels in long-term context, but they are in somewhat of a stall with numerous key lines going in the wrong direction. Even if one seeks to embrace the “one-time event” theme for tariffs, that still means higher price levels that can bring reduced purchasing power for select line items – subject to a household’s typical “basket” (coffee drinkers, beef eaters and “sweets” fans take note). The Iran effects now open up even more stagflation scenarios.

We include the 1997-2026 timeline above for a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

Debate in financial and economic circles rage on around whether the Fed inflation target should be 2.5% or 3.0% or some other number. The above chart offers a reminder of how hard it is to get to 2.0% or below for headline PCE or core PCE. The earlier chart from 1972 covers the timeline from the inflationary/stagflationary periods of 1973 to 1982 to hammer that home.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and core PCE median as noted in the chart. It took a lot to go wrong in that time horizon to cross that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001, oil crashes in the late 1990s and in the late 2014 to early 2016 period, and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

In the above timeline, we even see deflation in the post-crisis recession trough in mid-2009. The collapse in oil prices in late 2015 and then the COVID impact in 2020 gave an assist to low PCE before the supply-demand boomerang hit in 2021. Oil is a big headline mover whenever there is a sharp decline or spike, and we have had plenty of both.

This current situation rivals the geopolitical risk of late 1973 into early 1975. The biggest difference of course is that the US is now the largest oil and gas and liquids producer in the world. On the other hand, those US and Canadian producers will be raising prices along with the rest of the world.

It is interesting that the topic of the Feb 2022 invasion of Ukraine and ensuing oil and gas spike never seems to find a way into the Trump and MAGA rhetoric on inflation in 2022. That was a major factor in inflation, but the economic reality of the Russia relationship did not serve the domestic political priorities of Team Trump in assigning any blame there for inflation.

The lack of justice in this Middle East crisis is that the US is unleashing Russia to produce and profit by waiving sanction limits. They say “temporary” but that faces some skepticism with pro-Russia Witkoff and Jared on the job as NY real estate guys (not geopolitical experts with a pro-Democracy set of guidelines). The fact that Putin was a major factor in the 2022 inflation and now gets to profit from this round of oil inflation goes into the “life is not fair” category.

Gasoline has been in deflation mode for most of 2025, and that helped dampen the inflation headline numbers. As 2025 wore on, energy inflation has gone the other way and notably in areas such as electricity and piped utility gas (see CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26, Simplifying the Affordability Question 11-11-25, Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25). Now oil and LNG will pile on globally.

The above chart frames the long-term differential history between PCE and core PCE since 1972. The long-term median differential is zero and we are currently at -0.3%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s. We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest. Now oil will join in.

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month for a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth, the conclusion is that the consumer is feeling good or perhaps tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums).

The stimulus overload of 2021…

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to current rates. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022.

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

The COVID relief binge…

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump is launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this and the prior chart just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems at the end of 2025.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through Jan 2026 (we dropped 2019 from the chart this month given chart crowding). It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or other health care premiums under ACA. There is also the recurring pressure on select durable goods that face tariffs.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. The current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the savings rate history with the latest numbers rising to 4.5% from 4.0%. That is a tick below the June highs of 4.6%. The BEA savings rate data comes with the warning label that it has been a case study in revisions, but it does make intuitive sense as a reflection of how confident households are in their spending vs. savings.

We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). Savings rates peak in times of worry (occasionally panic) as evident in the chart above. As of 2025, households had clearly been spending even if some might come to regret it when credit card bills come due. As we roll into 2026, we could start to see pressure on the PCE lines.

Looking back across time, we see some examples. The period leading into May 1975 was no picnic after the massive stagflation bout and the same was true in Nov 1981. Dec 1992 had a raft of issues as the commercial real estate bubble was bursting (and hammering some banks), the leveraged finance boom was on the back end of the default cycle, the thrift crisis effects were still playing out across some major regional economies (notably TX and CA), and the regional oil patch pain that had come home to roost in 1987-1990 was lingering.

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