Key Inflation Gauge Worsened in January, Before Iran War Lifted Gas Prices

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An inflation gauge closely monitored by the Federal Reserve moved higher in January, with prices rising 2.8% compared to a year earlier. This was slightly below December's increase, but core prices excluding food and energy rose 3.1%, the highest in nearly two years. The data predates the impact of the Iran war, which has caused oil and gas prices to spike since late February.

Why it matters

The latest inflation data provides insight into price pressures in the US economy before the outbreak of the Iran war, which has significantly impacted energy costs. The Federal Reserve is closely watching inflation as it considers future interest rate decisions to try to cool inflation while avoiding a recession.

The details

Prices rose 0.3% in January on a monthly basis, while core prices excluding food and energy jumped 0.4% for the second straight month. This pace, if sustained, would lift inflation far above the Federal Reserve's 2% annual target. Consumer spending also rose 0.4% in January, matching December's increase and signaling that Americans are still driving steady economic growth.

• The inflation data is from January 2026, before the Iran war began on February 28, 2026.
• The Federal Reserve is meeting next week to consider interest rate policy.

What’s next

Fed policymakers are widely expected to keep interest rates unchanged at their meeting next week, given that the conflict in the Middle East will raise inflation in the short term.