Key Points:
- Consumer prices rose 0.2% in January, less than expected.
- The annual inflation rate slowed down to 2.4%.
- Strong job growth allows the Fed to keep interest rates steady.
- Tariffs and a weaker dollar may push costs up later this year.
U.S. consumer prices rose just a little bit in January, offering some relief to shoppers. The Labor Department reported on Friday that the Consumer Price Index (CPI) went up 0.2% last month. This was lower than the 0.3% increase that economists predicted. However, underlying inflation remains stubborn as businesses raised prices to start the new year.
Over the last 12 months, the inflation rate slowed to 2.4%, down from 2.7% in December. This drop happened mostly because high price jumps from early last year are no longer part of the calculation. But when you strip away volatile costs like food and energy, “core” prices actually rose 0.3%. This uptick is typical for January, as companies often adjust their pricing models at the start of the calendar year.
President Donald Trump’s broad tariffs are also playing a role. The cost of imported goods is creeping up, and a weaker U.S. dollar is making foreign products more expensive. Economists expect inflation might pick up speed again later this year as these import duties fully hit the market.
The Federal Reserve is watching these numbers closely. The central bank wants to see inflation drop to 2%, but it is currently running above that target. Because the economy is still adding jobs—unemployment recently fell to 4.3%—the Fed is not under pressure to cut interest rates immediately. They kept rates between 3.50% and 3.75% last month and will likely hold them there for a while.
The release of this report was delayed slightly by a three-day government shutdown last week. Despite the delay, the data suggest a stabilizing economy. While inflation is cooling off, the combination of a strong labor market and new trade tariffs means high prices aren’t disappearing overnight.
