Headline and core measures ease
U.S. inflation slowed more than economists anticipated in January, offering fresh evidence that price pressures may be moderating after an extended period above the Federal Reserve’s target.
The consumer price index rose 2.4% from a year earlier, down 0.3 percentage point from the prior month, according to the Bureau of Labor Statistics. Excluding food and energy, core CPI increased 2.5%, matching expectations and marking the lowest annual core reading since April 2021.
Monthly gains modest as shelter cools
On a month-to-month basis, overall CPI advanced 0.2% on a seasonally adjusted basis, while core prices rose 0.3%. Forecasts had called for 0.3% increases for both measures.
Shelter remained a key driver of inflation but showed additional signs of deceleration. Shelter costs rose 0.2% during the month, pulling the annual increase down to 3%. The category carries outsized influence on the index, representing more than one-third of the CPI basket.
Energy declines and travel costs jump
Energy prices declined 1.5% in January, helping offset firmer readings in other areas. Food prices rose 0.2%, with gains across most major grocery categories.
Vehicle pricing pressures were limited. New vehicle prices edged up 0.1%, while used cars and trucks declined 1.8%. Airline fares rose 6.5%. Egg prices fell 7% in the month and were down 34% from a year earlier after a sharp prior surge.
Markets reacted cautiously. Stock index futures were little changed following the release, while Treasury yields moved lower.
Rate-cut expectations shift toward midyear
The softer inflation reading supported expectations that the Federal Reserve could resume easing later in 2026. Futures pricing implied higher confidence in a June reduction, with traders placing the probability near 83%.
The inflation data arrives amid crosscurrents in the broader economy. Growth has been resilient, with a recent estimate tracking fourth-quarter expansion at 3.7%. At the same time, inflation has remained above the Fed’s 2% goal, and job creation in 2025 averaged roughly 15,000 positions per month.
Tariffs and the Fed’s preferred gauge
While tariffs announced in 2025 had been expected to push inflation higher, price impacts have appeared more concentrated in select categories rather than broadly across household budgets. The latest annual CPI reading returned to levels seen shortly after those measures were introduced.
The CPI is not the Federal Reserve’s primary inflation yardstick. Policymakers track the personal consumption expenditures price index more closely, with the next update scheduled for Feb. 20. The January CPI release itself was delayed by several days due to a partial government shutdown.
