Weekly Economic Trends and Indicators
The Headline:
Two important data points on inflation were released over the last several days. The Bureau of Labor Statistics (BLS) reported on February 13th that the Consumer Price Index (CPI) increased by 0.2% on a seasonally adjusted basis in January. That brings the inflation rate over the 12 months ending in January to 2.4% before seasonal adjustment.
Last Friday, the Bureau of Economic Analysis (BEA) reported that the Personal Consumption Expenditures (PCE) price index increased by 2.9% for the 4th quarter (seasonally adjusted) and 2.6% for 2025.
The Details:
Shelter price inflation (which includes rent and owners’ equivalent rent) was the largest contributor to the January monthly increase in the CPI. There were prices that rose at a faster rate than shelter (among them were airline fares, hospital services, dairy and related products, and tobacco and smoking products), but these are given a much smaller weight in the index compared to shelter, which accounts for over 35% of the index.
Another important takeaway comes from the BEA report on the PCE price index. Goods price inflation in the PCE was only 2.0%, whereas service price inflation was 3.3% in the third quarter. (PCE quarterly inflation is expressed as a seasonally adjusted annual rate.)
The Context:
The breakdown between inflation in goods and service prices goes to the question of what role tariffs have played in inflation. As measured by the PCE price index, goods price inflation moderated considerably in 2024 following the Federal Reserve’s prolonged series of interest rate hikes. That trend reversed in early 2025. Research by the Federal Reserve Bank of St. Louis shows that beginning in January 2025 PCE inflation on durable goods began to rapidly diverge from overall PCE inflation, ending up nearly 2% higher relative to trend by August 2025 compared to January 2024.
In raw numbers, this meant a 3.1% annualized inflation rate for durable goods in the 2nd quarter of 2025, but the 3rd and 4th quarters registered much lower numbers: 0.5% and 0.8% respectively. This suggests that most of the inflationary effect of tariffs on durable goods happened quickly—even in advance of the April tariff announcement. As far as nondurables are concerned, the overall change in inflation was much smaller, going from 0.5% in 2024 to 0.8% in 2025.
Service price inflation is not directly affected by tariffs at all, and yet this is now the larger component of overall inflation in the PCE. This is a reflection of strong consumer spending which grew at a robust 2.7% rate in 2025. As much as some voices in the Federal Reserve may want to resume interest rate cuts due to lower goods price inflation, the lingering service price inflation is causing others to remain cautious.
Next week: Quad Cities labor market update
