Inflation cooled more than expected in January, offering evidence that price pressures are easing even as households continue to face higher costs for basics such as food, medical care and electricity.
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.
Monthly increases also remained modest, extending the gradual slowdown that took hold in the second half of last year.
Still, the picture is muddied by statistical quirks and the aftereffects of last fall’s government shutdown, 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.
And 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.
After cutting interest rates three times last year, Federal Reserve officials have paused further reductions. They moved largely to support a softening labor market, but in recent weeks 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.
Looking ahead, Goldman Sachs economists expect tariffs to continue nudging up monthly prices over the next few months, with core inflation 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.
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