January Inflation Data
Inflation in the United States eased last month as lower prices for energy and used cars pulled the headline rate down. The Department of Labor said the consumer price index rose 2.4% over the 12 months to January. That compared with 2.7% in the prior month and marked the slowest pace since May.
Implications For Interest Rate Policy
The slower reading has been cited by U.S. President Donald Trump and others as support for the view that the Federal Reserve could cut interest rates without triggering a new rise in prices. Some analysts, however, have warned that progress toward the Fed’s 2% target could slow in the months ahead if companies pass more of the cost of tariffs on to consumers or if labor shortages push up prices for services.
Tariffs And Core Price Signals
For now, analysts said there were limited signs of tariff effects in the data. Prices for commodities excluding food and energy were unchanged last month. Neil Birrell, chief investment officer at Premier Miton Investors, said the impact of tariffs remains uncertain and pointed to other data quirks that could be influencing January’s figures. He said the January report was likely to “ease the path towards a cut in rates sooner rather than later.” He added that the U.S. economy shows strong growth, stable inflation, a firmer job market, and a Federal Reserve that has room to adjust policy.
White House Response And Jobs Data
The White House, which has faced political pressure over Trump’s handling of the economy, moved quickly to highlight the report. Trump told reporters at the White House on Friday that the U.S. economy was “unbelievable” and said “we right now have the hottest country anywhere in the world.” Earlier in the week, the Department of Labor reported that job growth in January was stronger than expected. In a statement, the White House said “President Trump has defeated Joe Biden’s inflation crisis” and said the economy would “turbocharge even further” if the Federal Reserve made interest rate cuts it described as overdue.
Market Expectations And Economist Views
Markets showed a muted response to the inflation data and currently expect the Federal Reserve to cut rates in June. Atakan Bakiskan, a U.S. economist at Berenberg, said recent jobs and inflation figures meant “the year could not have started on a better footing for Fed officials.” He added that the bank does not view the situation as settled and said it expects labor shortages to put upward pressure on wage growth. He said that pressure could keep services inflation from falling enough to bring overall inflation back to the Fed’s 2% target, a level the central bank has missed for 59 months.
Service Prices And Other Increases
Prices for personal services such as dry cleaning and haircuts rose 1.6% from December to January and were nearly 7% higher than a year earlier. January also saw increases in prices for cigarettes, airfares, and music streaming subscriptions.
Areas Of Slower Inflation And Price Declines
For many other items, price growth was more moderate. Rents increased 0.2% from December to January, down from a 0.4% pace in the previous month. Prices for used cars and trucks fell 1.8%, while energy prices declined 1.5% over the month. Price increases also slowed for several grocery items. Steak prices dropped more than 2% from December to January, though they remain nearly 13% higher than a year earlier. The cost of eggs fell more than 34% from January 2025.
Featured image credits: Pexels
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