MW The Fed's favorite inflation tool shows it has more work to do to ratchet down price increases

By Jeffry Bartash

PCE shows inflation rose almost 3% in 2025

Inflation is still too high in the U.S.

The numbers: The Federal Reserve's preferred inflation gauge showed prices rose close to 3% in 2025, leaving the central bank more work to do to get cost-of-living increases back down to pre-pandemic lows.

The personal consumption expenditures index rose a sharp 0.4% in December, the government said Friday in a reported delayed by lapses on federal shutdowns.

The increase in inflation in the 12 months ended in December rose to 2.9% from 2.8%.

The Fed has been trying for a few years now to reduce the rate of inflation to 2%.

The so-called core rate of inflation, which omits food and energy, also increased 0.4% in December.

The annual increase in the core rate moved up to 3.0% from 2.8%, hitting the highest level in almost a year.

The delayed December PCE report came out a week after the January consumer price index, making it somewhat dated and less important to financial markets.

The CPI showed the rate of inflation slowing in January to below 2.5%, but economists say it's unclear if the downward trend will persist. The government shutdown last fall may have led to inflation being temporarily underestimated.

In the same economic report, the government said consumer spending rose 0.4% in December. Incomes increased 0.3%.

Gross domestic product in 2025 increased at a 2.2% annual rate, the government said in a separate report.

Market reaction: The Dow Jones Industrial Average $(DJIA)$ and S&P 500 were set to open mixed in Friday trading.

-Jeffry Bartash

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February 20, 2026 08:38 ET (13:38 GMT)

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