Key inflation gauge worsened in January, before Iran war lifted gas
prices
[March 14, 2026] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — An inflation gauge closely monitored by the Federal
Reserve moved higher in January in the latest sign that prices were
persistently elevated even before the Iran war caused spikes in oil and
gas costs.
Prices rose 2.8% in January compared with a year earlier, the Commerce
Department said Friday, slightly below December’s increase in a report
that was delayed by last fall’s six-week government shutdown. The
shutdown created a backlog of data that is nearly cleared.
Yet excluding the volatile food and energy categories — which the Fed
pays closer attention to — core prices rose 3.1%, up from 3% in the
prior month and the highest in nearly two years.
On a monthly basis, prices rose 0.3% in January, while core prices
jumped 0.4% for the second straight month, a pace that if sustained
would lift inflation far above the 2% annual target set by the Fed.
The data has since been overtaken by the war with Iran, which began Feb.
28 and has shut down the Strait of Hormuz, cutting off one-fifth of the
world’s oil supply. Oil prices have soared more than 40% since the war
began and gas prices have jumped to $3.60 a gallon from just under $3 a
month earlier, according to AAA. Those figures will likely cause
inflation to spike in March and potentially April, economists forecast.
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 The inflation-fighters at the Fed
have kept their key interest rate elevated to slow borrowing,
spending, and growth in an effort to cool inflation further. Fed
policymakers meet next week and are widely expected to keep their
rate unchanged given that the conflict in the Middle East will raise
inflation, at least in the short run.
The report also showed that consumers lifted their
spending at a solid 0.4% pace in January, matching December's rise
and a sign that Americans are still able to drive steady growth.
Consumer spending powers about two-thirds of the economy.
Incomes also rose 0.4%, a positive sign that consumers didn't have
to dip into savings to propel spending in January. After-tax incomes
jumped 0.9%, fueled by a large increase in Social Security benefit
payments after a large cost of living adjustment took effect at the
start of the year.
Friday's report includes the personal consumption expenditures price
index, which is separate from the more widely-followed consumer
price index, which was reported on Wednesday. The PCE index is
running hotter than the CPI, largely because it puts much less
weight on rental costs, which have been cooling steadily in recent
months.
The PCE index typically runs below the CPI, but has pulled ahead of
it just in the past few months.
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