U.S. inflation slowed more than expected in January, moving closer to the Federal Reserve’s 2% target as energy prices declined.
According to the latest data, headline consumer prices rose 2.4% year-on-year, below economists’ forecasts of 2.5% and down from December’s 2.7% reading. The softer figure suggests inflationary pressures may be easing after months of elevated price growth.
On a monthly basis, the Consumer Price Index (CPI) increased by 0.2%, compared with expectations for a 0.3% rise. The moderation reflects a partial offset between rising shelter and food costs and falling energy prices, according to the Bureau of Labor Statistics.
Core CPI, which excludes volatile food and energy components, climbed 2.5% annually and 0.3% month-on-month. The annual reading was slightly lower than December’s 2.6%, while the monthly increase accelerated from 0.2%. Higher prices for services such as air travel and healthcare were balanced by declines in used vehicle prices, household furnishings, and motor vehicle insurance.
Some analysts had anticipated stronger price increases at the start of the year, as businesses often adjust pricing after the holiday season. However, those adjustments did not significantly influence January’s inflation data, according to economists.
The inflation report follows a stronger-than-expected U.S. jobs release earlier in the week, which showed solid payroll growth and a steady labor market. Together, the inflation and employment figures will play a key role in shaping the Federal Reserve’s next policy decisions.
The Fed held interest rates steady last month at a range of 3.5% to 3.75%, pointing to a stable labor market and persistent, though moderating, inflation pressures. After implementing multiple rate cuts in 2025 to support economic growth, policymakers now face the challenge of balancing inflation control with labor market stability.
Markets are increasingly pricing in a potential rate cut as soon as June, reversing earlier expectations that easing would be delayed until July. However, analysts suggest the Federal Reserve may remain cautious in the near term.
Following the data release, benchmark 10-year and two-year U.S. Treasury yields edged lower, while U.S. stock futures traded largely flat.
