Inflation Bounces Back as Economy Slows, Pre‑War Shock Looms

The first month of 2026 saw a modest rise in consumer prices, according to the Federal Reserve’s favored measure. Prices climbed 0.3 % from December, and when compared to last year the jump was 2.8 %. Even after removing food and energy, core inflation hit 0.4 % monthly and 3.1 % yearly – a full point above the Fed’s goal of 2 %.

Core inflation outpaces policy targets, hinting at underlying price pressures.

Growth, measured by GDP adjusted for inflation, was also trimmed. The final three months of 2025 now show a 0.7 % annual pace, lower than earlier estimates suggested.

Economic expansion slows as inflation persists.

These numbers were released just before a sudden spike in oil prices triggered by the conflict with Iran. The timing raises concerns that inflation could accelerate further as global markets react to the war.

Geopolitical shocks threaten to fuel price volatility.

The story of rising prices is not new. After a peak of over 9 % in 2022, inflation eased to near the Fed’s target by 2024. But since 2025 it has begun to climb again, especially in goods that have felt the weight of tariffs. Some trade barriers were overturned by the Supreme Court, yet others remain, forcing businesses to decide whether to absorb higher costs or pass them on to shoppers.

Tariff dynamics continue to influence consumer prices.

Overall, the data paint a picture of an economy that is slowing while prices keep moving up. Policymakers face the challenge of stabilizing inflation without stifling growth, all while navigating a volatile geopolitical landscape.