Inflation cooled more than expected in January, capping a week of promising economic data, easing pressure on the White House, which has faced political criticism about the economy.
Friday’s consumer price index showed prices rising at a 2.4 percent annual rate, just under economists’ expectations and down from 2.7 percent in December. It was the slowest annual increase since May. Underscoring the restrained pace of inflation, January saw large declines in energy and used cars and trucks. Gas prices, a subset of energy, fell 3.2 percent for the month.
Slower inflation provides a lift for the economy, reducing worries that the Trump administration’s steep tariffs might trigger wider price pressures. Yet households remain wary: a larger share of Americans report that their financial situations are worse than a year ago, and fewer expect to be better off a year from now, according to the Federal Reserve Bank of New York. Also, prices for items such as apparel, airfares and medical care rose in January.
Friday’s report follows a separate optimistic data point released Wednesday showing stronger-than-expected job growth last month, which comes as the White House has faced criticism for neglecting the economy, an issue that helped sweep Trump back into office.
“This was among the most back-to-back positive reports that we’ve gotten in a while,” said Jason Furman, a former Obama administration economist now at Harvard University. “It’s not like this is an all-clear or ‘Mission Accomplished’ moment, but it’s getting closer to the ‘soft landing’ we’ve been waiting for for years.”
While falling unemployment and inflation are encouraging, the data still warrants caution, he added, pointing to uneven job growth across sectors and signs of a pickup in inflation for services.
President Donald Trump has launched a campaign to tout his economic successes in recent weeks, as Democrats accuse him of ignoring complaints that housing and groceries are increasingly unaffordable for most Americans.
The White House took a victory lap, praising Friday’s “expectation-beating CPI report” as proof Trump “has defeated Joe Biden’s inflation crisis.”
“With inflation now low and stable, America’s economy is set to turbocharge even further through long-overdue interest rate cuts from the Fed,” said White House spokesman Kush Desai.
Stock indexes were trading higher as of midmorning Friday.
Economists warned that the overall economic picture remains muddied, including by statistical quirks and the aftereffects of the government shutdown this past fall, which disrupted the data that feeds into CPI. Specifically, gaps in collection may have distorted estimates for shelter costs, a big driver of the monthly report.
“The effects of the government shutdown will linger until after the January report for most items in the consumer basket, and they will remain until April for the CPI’s shelter index,” said Omair Sharif, who leads the forecasting firm Inflation Insights.
The one-time drop in energy costs, along with lingering data gaps from the government shutdown, suggests it’s too early to declare victory over inflation, said Joe Brusuelas, chief economist at RSM.
Diane Swonk, chief economist at KPMG, noted that while recent economic data — including cooler inflation and stronger jobs growth — is encouraging, it isn’t enough for the Federal Reserve to ease policy yet.
After cutting interest rates three times last year, Fed officials paused further reductions last month. They had cut largely to support a softening labor market, but in recent weeks they have signaled that future steps will hinge on incoming data. A string of soft inflation readings could strengthen the case for additional cuts, while a surprise pickup — especially in “core” prices that exclude food and energy — would bolster arguments for keeping borrowing costs elevated.
“They’re still waiting for the clouds in the data to clear,” Swonk said, adding that the good news is that at least the indicators aren’t moving in the wrong direction.
Broader policy choices could keep some pressure on prices. The White House is pushing to “run the economy hot” this year— using tax cuts, rate cuts and deregulation to spur growth ahead of the midterms — even as some economists caution that stimulative policies risk rekindling inflation, at least in theory.
Looking ahead, Goldman Sachs economists expect tariffs to continue nudging up monthly prices over the next few months, with core inflation — which excludes volatile food and energy categories — rising about 0.2 to 0.3 percent per month. After that, monthly increases are projected to slow to roughly 0.1 to 0.2 percent, as rent growth cools, the job market softens and the effects of tariffs fade.
By the end of 2026, annual core inflation — measured by both the CPI and the Fed’s preferred gauge — is projected to settle around 2.1 percent, near the central bank’s 2 percent target. Core prices rose 2.5 percent last month.
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