A customer shops at a grocery store on March 11, 2026 in Miami, Florida.
Joe Radle | Getty Images
The Commerce Department reported Friday that while core inflation will rise in early 2026, economic growth in the final three months of 2025 was much slower than expected.
Gross domestic product (GDP), a measure of all goods and services produced across the vast U.S. economy, rose at an annual rate of just 0.7% in the fourth quarter, adjusted for seasonality and inflation, according to the department’s Bureau of Economic Analysis.
The first revised GDP figure was significantly revised downward from the previous estimate of 1.4%, and was well below the Dow Jones consensus estimate of 1.5%. This was also a significant deceleration from the 4.4% increase in the previous period.
For the full year, GDP increased by 2.1%, or one-tenth of a percentage point less than the previous reading. In 2024, the economy grew at a pace of 2.8%.
BEA said the downward revision was due to adjustments in consumer and government spending and exports. Strictly speaking, the decline in imports, which is deducted from GDP, was also smaller than in the previous estimate.
On the inflation front, January’s data was mostly in line with expectations, but showed that prices were rising much faster than the Federal Reserve wanted.
The Federal Reserve’s main inflation forecasting tool, the Personal Consumption Expenditure Price Index, rose a seasonally adjusted 0.3% in the month, for an annual rate of 2.8%. Economists surveyed by Dow Jones had called for readings of 0.3% and 2.9%, respectively.
Excluding volatile food and energy costs, core PCE inflation rose 0.4% in January and 3.1% on a 12-month basis. Fed officials are placing more emphasis on core numbers as a better indicator of long-term trends. The core measure was 0.1 points higher than in December.
Although the numbers are old, they still provide a snapshot of inflationary pressures leading up to the Supreme Court’s decision striking down many of the tariffs President Donald Trump had imposed under the International Emergency Economic Powers Act. Economists generally assumed that tariffs increased inflation trends by about 0.5 percentage points or more.
The report also predates the attacks launched by the United States and Israel against Iran in early March. Energy prices have soared in the two weeks since the conflict began, with the international benchmark price for Brent crude reaching $100 a barrel on Thursday.
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