US consumer expenditures saw an increase in February, likely driven by rising prices, which could intensify concerns that the economy is facing a period of slow growth alongside high inflation amidst escalating trade conflicts.
Consumer spending, which represents over two-thirds of economic activity, rose by 0.4 percent following a revised decline of 0.3 percent in January, as reported by the Commerce Department's Bureau of Economic Analysis.
President Donald Trump has enacted a series of tariff measures since taking office in January. On Wednesday, Trump announced a 25 percent tax on imported cars and light trucks set to take effect next week. Economists suggest that the scale and execution of these tariffs could negatively impact economic growth.
Both business and consumer confidence have significantly weakened, increasing the risk of an economic downturn, as U.S. trading partners are likely to respond with their own tariffs. The anticipated tariffs have notably expanded the trade deficit as companies hurried to secure imports.
Consumers, keen to avoid rising prices, accelerated their purchases, much of which occurred in December.
The decline in preemptive buying in addition to unseasonably cold weather and snowstorms dampened spending at the beginning of the year.
Prior to the latest data, gross domestic product forecasts for the first quarter were generally around a 1.0 percent annualized rate, and the likelihood of a contraction has increased. The economy expanded at a pace of 2.4 percent in the October-December quarter.
Federal Reserve Chair Jerome Powell acknowledged last week that inflation has begun to rise "partly in response to tariffs," and noted that "there may be a delay in further progress over the course of this year."
Excluding the volatile food and energy sectors, the PCE price index increased by 0.4 percent after an unrevised rise of 0.3 percent in January. Over the 12 months leading to December, core inflation rose by 2.8 percent after climbing 2.7 percent in January.
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The US central bank monitors the PCE price metrics to meet its two percent inflation target. Last week, the Fed maintained its benchmark overnight interest rate in the range of 4.25 percent-4.50 percent. Financial markets anticipate it will resume lowering rates in June.