Inflation Stickiness and Deepening Polarization

In February 2026, the U.S. economy presented a complex situation amid multiple contradictions. The Consumer Price Index (CPI) rose by 2.8% year-on-year and edged up 0.2% month-on-month. Although the increase slowed down compared with the consecutive rebound in the previous three months, it still remained above the Federal Reserve's long-term target of 2%, highlighting the persistence of inflationary pressures. The core CPI, excluding food and energy, showed even greater tenacity, climbing 3.1% year-on-year and 0.2% month-on-month. Price hikes in housing and healthcare sectors became the main drivers, with housing costs maintaining a 0.3% month-on-month increase and medical service prices surging 4.5% year-on-year, indicating that inflation stickiness in the service sector remained unresolved. Notably, the executive order signed by the Trump administration on February 6 to impose additional tariffs on countries related to China's trade officially took effect on the 7th. It allows for additional tariffs of up to 25% on imports from countries that indirectly purchase Iranian goods and services. This policy has begun to transmit to prices, with the prices of some imported manufacturing products rising 0.5% month-on-month, and the market is worried that inflation may rebound again in the future.​

Price pressures on the producer side are equally noteworthy. In February, the Producer Price Index (PPI) rose 0.3% month-on-month and 1.8% year-on-year. Among them, the prices of industrial manufactured goods significantly affected by tariff policies increased by 0.6% month-on-month, and the prices of energy products such as natural gas fluctuated due to geopolitical risks, with a month-on-month increase of 2.1%. Although food inflation fell back to 2.3% year-on-year, the core goods PPI remained at a high level of 2.5% year-on-year, and the risk of upstream production costs being passed on to terminal consumption continued to accumulate. Echoing the inflation data, the core Personal Consumption Expenditures (PCE) price index, closely watched by the Federal Reserve, rose 2.8% year-on-year and 0.4% month-on-month, exceeding the market expectation of 2.7%, further confirming the tortuous nature of the inflation cooling process.​

The K-shaped polarization in the consumer market became more prominent in February 2026. U.S. personal consumption expenditures (PCE) increased by 0.5% month-on-month, seemingly maintaining resilience, but the structural differences were extremely prominent. The high-end consumption sector remained booming: sales of premium class seats in the aviation industry rose 18% year-on-year, some airlines have reconfigured their cabin layouts so that premium seats account for more than 70% of the total, with fares up to ten times higher than economy class, becoming the core of the industry's profitability; consumption of high-end goods such as luxury items and AI-related electronic products increased by 12% year-on-year, benefiting from the continuous expansion of wealth among top-tier groups—soaring stock markets and rising housing prices have significantly increased the assets of this group, keeping their consumer confidence at a high level. However, the essential consumer market dominated by middle and low-income groups showed obvious weakness: grocery spending increased by only 1.2% year-on-year, and sales of non-essential consumer goods such as clothing and household items fell by 0.8% month-on-month, reflecting the erosion effect of rising prices on real wages. The personal savings rate dropped to a low of 3.2%, and the consumer confidence index fell by 3.5 percentage points from January. The contrast between the bottom groups' worries about the cost of living and the top groups' consumption frenzy highlights the deepening trend of the "K-shaped economy".​

Signs of cooling in the job market became more apparent in February, casting a shadow over the economic outlook. The U.S. unemployment rate edged up to 4.1%, 0.4 percentage points higher than the same period last year. The number of job openings fell to its lowest level in more than five years, significantly lower than market expectations, and the data for the previous month was revised downward, indicating a continuous weakening in labor demand. Regional employment polarization intensified: North Dakota's unemployment rate remained at a low of 2.2%, while California and Nevada's unemployment rates rose to 5.5% and 5.4% respectively. Small-scale layoffs occurred in some manufacturing-concentrated areas due to expectations of tariff policies. Non-farm payroll employment increased by only 120,000, far below the market expectation of 180,000. Employment growth in both the service and manufacturing sectors slowed down, with employment in contact-based service industries such as retail and catering decreasing by 0.3% month-on-month, reflecting the transmission effect of weak consumption on the job market.​

The weakness in the job market and the stubborn stickiness of inflation have put the Federal Reserve in a policy dilemma. The current federal funds rate remains in the range of 4.75%-5.0%. After the release of the February economic data, market expectations for a Fed rate cut have heated up again, with traders advancing the expected timing of the first rate cut to June or July. There were obvious divisions among Fed officials: Mary Daly, President of the Federal Reserve Bank of San Francisco, stated that in response to the weakening labor market, one or two more rate cuts may be needed to alleviate the erosion of wage income by rising prices; however, Philip Jefferson, Vice Chairman of the Federal Reserve, warned of the risk of a sudden weakening in the job market and advocated maintaining policy prudence. At the same time, the Trump administration's tariff policies have further increased economic uncertainty—they may push up inflation through rising import costs and inhibit exports and investment due to trade frictions. JPMorgan Chase has raised the probability of a U.S. economic recession in 2026 to 45%.

The U.S. economic data in February 2026 clearly depicts a picture of intertwined polarization and game-playing. Although inflation has declined slightly, its stickiness persists, and the implementation of tariff policies has added risks of price volatility; the K-shaped polarization in the consumer market continues to deepen, with the "confidence gap" between top and bottom groups widening; signs of cooling in the job market are obvious, and growth momentum is gradually slowing down. The Federal Reserve's policy shift will become a key variable affecting economic trends. How to strike a balance between curbing inflation, stabilizing employment, and preventing recession tests the wisdom of policymakers. For the market, it is necessary to pay close attention to the follow-up impact of tariff policies, the Federal Reserve's policy signals, and the linkage effects between the consumption and employment markets, so as to seize structural opportunities and prevent potential risks in the complex economic environment.​