The US consumer price index (CPI) rose 2.4% in the 12 months to January, the Labor Department reported, marking the slowest annual increase since May and down from 2.7% in December. The decline in inflation could strengthen calls by President Donald Trump and others for the Federal Reserve to reduce interest rates without risking a surge in prices.
Analysts caution, however, that progress toward the Fed’s 2% inflation target could stall in the months ahead. Companies may begin passing the costs of tariffs onto consumers, and labour shortages could push up prices for services, potentially slowing the downward trend. For January, core prices—excluding food and energy—remained largely steady, showing limited impact from tariffs so far.
Neil Birrell, chief investment officer at Premier Miton Investors, noted that while the effects of tariffs remain uncertain, the latest report is likely to “ease the path towards a cut in rates sooner rather than later.” He added that the US economy “looks to be in fine fettle with growth strong, inflation stable, the job market looking firmer and a Fed that has room to manoeuvre.”
January saw increases in specific sectors, including cigarettes, airfares, and music streaming subscriptions. Personal services such as haircuts and dry cleaning rose 1.6%. Despite these gains, inflation moderated across other areas. Rents rose 0.2% from December to January, down from a 0.4% increase in the previous month. Grocery prices showed signs of easing: steak fell more than 2% from December, though it remains nearly 13% higher than a year ago, while the cost of eggs dropped more than 34% from January 2025.
Economists say the overall picture gives the Fed some flexibility. Atakan Bakiskan, a US economist at Berenberg, described the start of the year as positive for policymakers, but warned that labour shortages could eventually drive wage growth and services inflation upward, complicating the Fed’s efforts to reach its 2% target—a goal it has now missed for nearly five years.
The inflation data coincides with stronger-than-expected job growth reported earlier by the Labor Department, reinforcing a view of a resilient US economy. Investors and policymakers are closely watching the combination of cooling consumer prices and robust employment, which may influence decisions on interest rates in the coming months.
For now, the January report offers a mixed but generally positive signal: price growth is moderating, supporting arguments for potential rate cuts, while underlying pressures in the labour market and tariffs remain factors to monitor.
