Market Update: Consumer Prices Rose in January, Before Iran War Added Price Pressures – Full Analysis

Economic growth was slower at the end of 2025 than data first showed and inflationary pressures persisted at the start of this year, a troubling snapshot of an economy on unsteady footing before war with Iran upended oil and financial markets.

Consumer prices increased moderately in January, the Federal Reserve’s preferred inflation gauge showed on Friday. Economists worry prices will march even higher in the coming weeks. And gross domestic product, the benchmark measure of economic growth, which is adjusted for inflation, was revised down to a 0.7 percent annual pace for the last three months of the year.

The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, notched a 0.3 percent monthly increase in the first month of 2026. Compared with the same time last year, prices were up 2.8 percent. The “core” inflation reading, which strips out more volatile food and energy prices, came in at 0.4 percent on a monthly basis, and 3.1 percent on an annual basis. That is a full percentage point above the Fed’s 2 percent target.

“It basically shows that inflation firmed up to start the year,” Omair Sharif, founder of the research firm Inflation Insights, said of the data. “All the key measures are moving in the wrong direction.”

A snapshot taken just before the shock to oil prices from the war with Iran, the price data offer a worrisome setup for inflation going forward.

After peaking over 9 percent on an annual basis in 2022, inflation cooled off by 2024, gliding just above the Fed’s 2 percent target. Since 2025, though, the inflation picture has worsened. Goods inflation, which had been slowing for years, has swung back up in various categories since President Trump announced tariffs last spring. Some of those tariffs have been struck down by the Supreme Court. Others, though, remain in place, and have led businesses to toggle between absorbing the increased cost of imports and passing along those new costs to consumers.