Savings Rate Slides As Fed's Favorite Inflation Gauge Slowed In February (Ahead Of War)

The Fed's favorite inflation indicator - Core PCE (a measure of price changes in consumer goods and services that excludes volatile food and energy costs) - rose 0.4% MoM in February (pre-war), in line with expectations, with YoY rising 3.0% (as expected - lowest since Dec), down from January's +3.1%...

Source: Bloomberg

The YoY Core decline is coming off January's highest level since March 2024, with Services cost inflation slowing notably...

The headline PCE also rose 0.4% MoM (as expected - the biggest MoM rise since Feb 2025), up 2.8% YoY (also as expected)...

Source: Bloomberg

Under the hood, we saw a notable jump in non-durable goods prices...

Source: Bloomberg

The much-watched SuperCore PCE (Services Ex-Shelter rose 0.2% MoM with the YoY rise tumbling to +3.2% - in line with its lowest level since March 2021...

Under the hood, Recreation Services and Healthcare saw the largest deceleration MoM...

For those worried about the impact of crude oil's recent surge (since the start of the Iran war), it appears - somehow - that PCE's Energy component has already front-run some of the move but there's a lot more pain to come for March...

Source: Bloomberg

Higher prices were met with lower incomes (-0.1% MoM vs +0.3% MoM exp) and higher spending (+90.5% MoM vs +0.6% MoM exp)...

Source: Bloomberg

Income growth is slowing significantly while spending is accelerating...

Source: Bloomberg

Adjusted for inflation, real spending rose 2.5% YoY - the highest since Oct 2025...

Source: Bloomberg

After jumping from 3.9% to 4.5% in January, Americans' savings rate dropped back to 4.0% in Feb (after another huge revision in late 2025), basically at the weakest level since Nov 2023...

Source: Bloomberg

So spending solid as incomes fell and prices are rising... but this is all pre-war, so a large pinch of salt is required.