As the first quarter comes to a close, there's an uncomfortable picture becoming clear in the data: The economy is going through a growth slowdown paired with an inflation surge.

Why it matters: As the White House plots a major escalation of tariffs next week, the backward-looking data shows that there already is more than a whiff of stagflation in the air.

Driving the news: The Personal Consumption Expenditures Price Index — the Federal Reserve's preferred gauge of inflation — was hot in February, the Commerce Department said today.

• The core measure, which excludes food and energy, rose by 0.4% in February, picking up pace for the fourth straight month. It was the highest reading in a year.
• From the same period a year ago, the PCE price index increased 2.8%, compared to January's 2.7%.
• Core PCE rose at a 3.6% annualized pace over the last three months, the highest since last March.

The news on spending points to a slowing in demand from consumers at the start of 2025.

• Personal consumption expenditures, adjusted for inflation, rose just 0.1% in February after dropping by 0.6% the previous month.
• Separate reports have shown a surge in imports, likely driven by companies looking to get ahead of looming tariffs. In the arithmetic of GDP, this depresses the growth rate.
• Put it all together, and GDP is on track to contract at a 0.5% annual rate, per the latest update to the Atlanta Fed's GDPNowcast (after adjusting for data quirks due to gold imports).

Today's data is "only inflaming stagflation fears," ING chief international economist James Knightley wrote.

• "We are moving in the wrong direction and the concern is that tariffs threaten higher prices, which mean the inflation prints are going to remain hot," Knightley added. "This will constrain the Fed's ability to deliver further interest rate cuts."

The big picture: The fast-moving White House policy means data from just last month feels stale.

• As of February, the Trump administration had doubled tariffs on imports from China to 20%.
• There have been plenty of stops and starts since then, though tariffs have been slapped on imports of steel, aluminum and foreign-made cars. More tariffs are expected next week.

What to watch: Fed officials this week appeared to adjust their tone on tariffs, with some more explicitly acknowledging the inflation threat.

• "It looks inevitable that tariffs are going to increase inflation in the near term," Boston Fed president Susan Collins said yesterday.

Yes, but: Income growth was the bright spot: Real disposable income rose 0.5% — compared to the 0.3% increase in January.

• Much of that increase, however, reflected government benefits. Stripping that out, incomes rose 0.1% in real terms.

That's the backward-looking data. Looking forward, Americans seem to anticipate a stagflationary year ahead, per the latest data from the University of Michigan's long-running sentiment survey.

By the numbers: The headline consumer sentiment index fell to 57 in March, a 12% drop from February, confirming a preliminary release two weeks ago that showed a similar drop-off.

• The falloff was steepest in expectations for the future, which showed a "precipitous" 18% decline per the survey director, as opposed to current economic conditions.
• The drop in expectations was seen across political affiliations, with Republicans' outlook falling by 8% in March (though still higher than pre-election).

Between the lines: The details of the release line up with a stagflationary story.

• Survey respondents now anticipate 5% inflation over the next year, up from 4.3% in February.
• But they are also intensely gloomy about the job market, with two-thirds of respondents expecting the unemployment rate to rise in the next year — the highest since 2009.

What they're saying: "Republicans joined independents and Democrats in expressing worsening expectations since February for their personal finances, business conditions, unemployment, and inflation," survey director Joanne Hsu said in the release.

• "Consumers continue to worry about the potential for pain amid ongoing economic policy developments."

For the record: The White House attributes the data to the Biden administration, though February was President Trump's first full month in office.

• "Americans are continuing to feel the lingering effects of four years of economic disaster under Joe Biden," said White House spokesperson Kush Desai.
• "The Trump administration is focused on slashing Biden's runaway spending that fueled inflation in the first place, and declining energy prices prove how President Trump's America First agenda is already delivering much-needed relief for everyday Americans."

The bottom line: The economy has started the year with a thud. And Americans are increasingly pessimistic that it will get any better.