Inflation decelerated but people are spending less and saving more as prices keep rising and wage growth slows. It’s worrying news for the Fed and economy.

The U.S. dollar edged lower on Friday following two straight days of gains, after a reading on inflation was largely as anticipated by investors while consumer spending unexpectedly fell. The Personal Consumption Expenditures (PCE) price index increased 0.

U.S. consumer spending unexpectedly fell in January, but a pick up in inflation could provide cover for the Federal Reserve to delay cutting interest rates for some time. Consumer spending, which accounts for more than two-thirds of U.

The first report of the new year found that consumer sentiment had fallen, while inflation concerns had risen.

Inflation expectations vary by political affiliation, surveys show, but fears of inflation can be self-fulfilling.

The Consumer Prices Index (CPI) rose by 3.0% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024. On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024.