Inflation and Consumer Spending Surge: Pre-emptive Buying Ahead of Tariffs Impacts Fed Outlook

A forthcoming report from the U.S. Department of Commerce, expected on Friday, is poised to provide critical insights into two key economic areas: the trajectory of inflation and consumer behavior in anticipation of potential price hikes stemming from tariffs implemented by President Donald Trump’s administration.

Anticipated Rebound in Consumer Spending Ahead of Tariffs

The report will detail personal income and spending levels for February. Crucially, it will also include the personal consumption expenditures (PCE) price index, which serves as the Federal Reserve’s primary gauge for inflation. Current projections, based on a Dow Jones forecast, anticipate a 0.5% increase in consumer spending for February. This follows a 0.2% decline recorded in January. However, analysts suggest this expected rise might partly reflect consumers making purchases ahead of schedule, before additional tariffs potentially take effect.

Credit Card Data Indicates Pre-emptive Buying

Supporting this view, an analysis by Bank of America (BAC) revealed a year-over-year increase in credit card spending. Notably, sectors often sensitive to tariffs saw growth, including online electronics and general online retail sales. Conversely, spending decreased in other categories such as gasoline, airline travel, and entertainment.

Inflation Trends Remain a Fed Concern

Regarding inflation, both the overall and core PCE price indexes are projected to rise by 0.3% in February on a month-over-month basis. This would place the annual inflation rates at approximately 2.5% for the headline figure and 2.7% for the core measure (which excludes volatile food and energy prices).

While these monthly increases are relatively modest, they represent a slight acceleration from January’s figures. This trend is drawing attention from Federal Reserve officials. The president of the St. Louis Fed, for instance, has cautioned that secondary effects could contribute to inflation remaining elevated for a longer period than previously anticipated.

Inflation Forecast Summary (February)

Metric	Expected Monthly Increase	Approx. Annual Rate
Headline PCE Index	0.3%	2.5%
Core PCE Index	0.3%	2.7%

Federal Reserve Outlook Amid Uncertainty

Market participants largely anticipate that the combination of existing inflationary pressures and the potential impact of tariffs will likely lead the Federal Reserve to maintain its current policy stance without changes until at least its June meeting. Current market probabilities suggest expectations lean towards two or three interest rate cuts occurring later in the year.