Key Inflation Gauge Worsens Before Iran War Impacts Prices

January data shows rising prices even before the conflict in the Middle East caused spikes in oil and gas costs.

Mar. 13, 2026 at 1:03pm

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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. Excluding volatile food and energy categories, core prices rose 3.1%, the highest in nearly two years. The data predates the recent Iran war, which has caused oil prices to soar more than 40% and gas prices to jump to $3.60 per gallon, likely leading to further inflation spikes in the coming months.

Why it matters

The persistent rise in prices, even before the Iran conflict, suggests that inflationary pressures were already building in the economy. This puts the Federal Reserve in a difficult position as it tries to balance fighting inflation with avoiding further economic slowdown.

The details

Consumer spending rose 0.4% in January, matching the previous month's pace and indicating that Americans are still driving steady economic growth. Incomes also increased 0.4%, with a large jump in Social Security benefit payments fueling a 0.9% rise in after-tax incomes.

  • The January inflation data was released on March 13, 2026.
  • The Iran war began on February 28, 2026.

The players

Federal Reserve

The central banking system of the United States that is responsible for monetary policy, including setting interest rates to influence inflation and economic growth.

Commerce Department

The U.S. government department that oversees economic and demographic data, including the release of the personal consumption expenditures (PCE) price index, a key inflation gauge.

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What’s next

The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting next week, as the conflict in the Middle East is likely to drive further inflation in the short term.

The takeaway

This report highlights the persistent inflationary pressures in the economy even before the Iran war, putting the Federal Reserve in a challenging position as it tries to balance fighting inflation and supporting economic growth. The data underscores the complex economic landscape facing policymakers in the months ahead.