Core PCE Inflation Remains Elevated
Core PCE inflation stayed elevated in January 2026 and an Iran oil shock could lift inflation and delay Fed easing, raising market volatility.
KEY TAKEAWAYS
- The core PCE price index rose 0.4% month-over-month and 3.1% year-over-year in January 2026.
- Headline PCE was 2.8% year-over-year in January 2026 and the data predated the Iran oil shock.
- Economists warned an Iran-driven oil spike could lift headline and core inflation and delay Fed easing.
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Core personal consumption expenditures (PCE) inflation stayed elevated in January 2026, the Bureau of Economic Analysis said on March 13, 2026. The core PCE price index, which excludes volatile food and energy costs, rose 0.4% month-over-month and 3.1% year-over-year, the highest reading in nearly two years. Economists warned that an Iran-driven oil spike could push prices higher, complicating the Federal Reserve’s policy outlook.
January Inflation Readings and Price Dynamics
The BEA’s January report showed the headline PCE price index increased 0.3% month-over-month and 2.8% year-over-year, down from 2.9% year-over-year in December 2025. Services inflation ran at 3.5% year-over-year, while goods inflation was 1.3% year-over-year, highlighting uneven price pressures behind the aggregate figures.
Iran Oil Shock and Inflation Outlook
An Iran conflict that began around March 4, 2026, effectively closed the Strait of Hormuz, pushing Brent crude above $100 per barrel and U.S. retail gasoline to about $3.40 per gallon, a roughly 14% increase. These energy market moves lifted near-term inflation expectations.
The January PCE data were collected before the conflict. Economists expect the energy shock to raise headline inflation further, projecting the top-line PCE could reach roughly 3.5% to 4.0% by mid-2026. Consumer sentiment reflected this shift: the University of Michigan’s preliminary March index fell to 55.5 from 56.6 in February, a 1.9% decline and the lowest reading in three months.
Federal Reserve officials are monitoring the conflict for spillover into core inflation. Near-term rate cuts have been sidelined, and market forecasters, including major banks, have flagged that the oil shock may delay the next Fed easing. Commentators also warn of stagflation risk if the disruption continues.
