US PCE Inflation Climbs to 2.9% as Spending Jumps in December
The Federal Reserve’s preferred inflation gauge accelerated at the end of 2025, as fresh data from the U.S. Bureau of Economic Analysis showed both headline and core prices rising at a faster monthly pace in December.
- Headline PCE inflation rose to 2.9% year over year, with core PCE at 3.0%.
- Both headline and core prices increased 0.4% month over month.
- Consumer spending climbed $91 billion, driven entirely by services.
- Goods spending declined, led by motor vehicles and apparel.
- Real income was flat, and the saving rate remained low at 3.6%.
The Personal Consumption Expenditures (PCE) price index increased 0.4 percent month over month in December, up from 0.2 percent in November. On an annual basis, headline PCE rose 2.9 percent, while core PCE – which excludes food and energy – climbed 3.0 percent compared with December 2024.
The report, originally scheduled for January 29, 2026, was delayed due to the October–November 2025 government shutdown.
Monthly Inflation Picks Up
Both headline and core inflation measures showed identical monthly gains of 0.4 percent in December, marking a clear acceleration from the prior month’s 0.2 percent increase. The annual core reading at 3.0 percent remains above the Federal Reserve’s 2 percent target, underscoring continued underlying price pressures.
On a real basis, PCE increased just 0.1 percent in December, down from 0.2 percent in November, suggesting that much of the nominal spending growth was driven by higher prices rather than stronger volume.
Consumer Spending Driven by Services
Personal consumption expenditures rose $91.0 billion in December, or 0.4 percent at a monthly rate. The increase was entirely powered by services spending, which jumped $98.5 billion. Spending on goods, however, declined by $7.5 billion.
Within services, gains were led by housing and utilities, recreation services, health care, and financial services. Goods categories showed weakness, including declines in motor vehicles and parts, clothing and footwear, and other nondurable goods.
Personal outlays – which include PCE, interest payments, and transfer payments – rose $90.2 billion in December.
Income Growth Slows
Personal income increased $86.2 billion, or 0.3 percent, in December, slightly below November’s 0.4 percent rise. Disposable personal income (DPI) also rose 0.3 percent, matching the prior month’s pace.
However, real disposable income was flat in December after rising 0.1 percent in November, reflecting the impact of higher inflation on purchasing power.
The increase in income was primarily driven by higher compensation and personal current transfer receipts.
Saving Rate Edges Lower
Personal saving totaled $830.8 billion in December. The personal saving rate – measured as saving as a percentage of disposable income – stood at 3.6 percent, continuing to hover near multi-year lows.
The December data reinforces a mixed macro picture: consumers continue to spend, particularly on services, but inflation pressures have re-accelerated while real income growth stalls. With core PCE still running above target, the Federal Reserve faces renewed scrutiny over the path of interest rates in early 2026.
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