Fourth-quarter GDP revised down to just 0.7% growth; January core inflation was 3.1%

Economic growth was much slower than expected in the final three months of 2025 while core inflation rose to start 2026, the Commerce Department reported Friday.

Gross domestic product, a measure of all the goods and services produced across the sprawling U.S. economy, rose at a seasonally and inflation-adjusted annual rate of just 0.7% in the fourth quarter, according to the department’s Bureau of Economic Analysis.

The first revision of the GDP reading was a sharp step down from the previous estimate of 1.4% and well below the Dow Jones consensus forecast for 1.5%. It also marked a considerable slowdown from the 4.4% gain in the prior period.

For the full year, GDP posted a 2.1% increase, or one-tenth of a percentage point lower than the previous reading. In 2024, the economy rose at a 2.8% pace.

According to the BEA, the downward revision came due to adjustments in consumer and government spending and exports. A decline in imports, which technically subtract from GDP, also was less than the previous estimate.

On the inflation side, readings for January were mostly in line with estimates, though they showed price increases running well ahead of where the Federal Reserve would like.

The personal consumption expenditures price index, the Fed’s primary forecasting tool for inflation, posted a seasonally adjusted gain of 0.3% for the month, putting the annual rate at 2.8%. Economists surveyed by Dow Jones had been looking for respective readings of 0.3% and 2.9%.

Stripping out volatile food and energy costs, core PCE inflation rose 0.4% in January and 3.1% on a 12-month basis. Fed officials focus more closely on the core reading as a better indication of longer-run trends. The core reading was 0.1 percentage point higher than December.

Though the numbers are dated, they nonetheless provide a snapshot of inflation pressures heading into the Supreme Court decision that voided many of President Donald Trump’s tariffs that he exercised under provisions in the International Emergency Economic Powers Act. Economists generally assumed that tariffs had added about half a percentage point or a bit more to inflation trends.

The report also predates the early March attacks that the U.S. and Israel launched against Iran. Energy prices have surged in the nearly two weeks since the conflict began, with the Brent crude international benchmark touching $100 a barrel Thursday.

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