April 24, 2025
WASHINGTON (AP) — An inflation gauge closely watched by the Federal Reserve remained high last month. Americans' spending increased after a steep fall last month but remained weak, suggesting consumers have turned more cautious this year.
Friday’s report from the Commerce Department showed that consumer prices increased 2.5% in February from a year earlier, matching January’s annual pace. Excluding the volatile food and energy categories, core prices rose 2.8% compared with a year ago, higher than January’s figure of 2.7%.
Economists watch core prices because they are typically a better guide of where inflation is headed. The core index has barely changed in the past year. Inflation remains above the Federal Reserve's 2% target, making it difficult for the central bank to cut its key interest rate anytime soon.
Consumer spending picked up 0.4% in February from the previous month, after the sharpest drop in four years in January. However, much of that spending reflected price increases, with inflation-adjusted spending rising just 0.1%.
Inflation remains a top economic concern for most Americans, even as it has fallen sharply from its 2022 peak.
The U.S. has slapped 20% tariffs on all Chinese imports, 25% import taxes on steel and aluminum, and on Wednesday said it would hit imported cars with another 25% duty.
On a monthly basis, prices rose 0.3% in February from the previous month, the same as in January, while core prices increased 0.4%, the largest increase in more than a year.
One bright spot in the report was a big jump in incomes for the second straight month — they rose 0.8% in February from January. Higher income with weaker spending pushed up the savings rate.
“Savings went up, consistent with reports of flagging consumer confidence, rising uncertainty about the future and reduced expectations for the future,” Carl Weinberg, chief economist at High Frequency Economics, said.
Apparel company Lululemon on Thursday became the latest retailer to warn that slumping consumer confidence would hurt sales, sending its shares sharply lower. Nike previously issued a similar warning, and expectations from major retailers like Target and Walmart have grown subdued.
