US Inflation Comes in Relatively Tame, Defying Fears of Jump

Veronica Clark, US Economist & Director of Research at Citi, and Bloomberg New Macro Strategist Michael Ball, react to the January US CPI print.

US inflation was fairly mild at the start of the year, defying concerns for a bigger jump and boosting expectations that the Federal Reserve will deliver more interest-rate cuts.

The consumer price index rose 0.2% in January, the smallest gain since July and restrained by lower energy costs, according to Bureau of Labor Statistics data out Friday. An underlying metric known as the core CPI, which excludes food and energy, advanced as expected from a month earlier.

January inflation readings have been strong in recent years, often beating expectations as companies tend to raise their prices at the start of the year. Many economists had called for an even bigger pickup in the core CPI for that reason, as well as predictions that firms would pass along more tariff-related costs to consumers.

While services costs picked up last month, prices of core goods remained stable. The core CPI rose from a year ago by the least since 2021. The overall gauge also eased on an annual basis.

Markets rallied in relief as the core figure was relatively tame and came in line with the median projection. Treasury yields fell and the S&P 500 fluctuated, while traders boosted bets for the Federal Reserve to cut interest rates three times this year.

Alongside recent indications of a stabilizing labor market, Fed officials will likely want to see further inflation progress before lowering interest rates.

“On balance, we found today’s report to be encouraging,” Wells Fargo & Co. economists said in a note. “Tariff-induced price hikes probably have not fully worked their way through the data, but we are closer to the end than the beginning of this source of higher prices.”

The slight pickup in underlying inflation from a month earlier reflected higher prices for airline fares, personal care, recreational goods, medical care and communication. However, prices of used cars and trucks, household furnishings and auto insurance decreased last month.

Americans did see some relief on the costs of everyday purchases as electricity prices ebbed and gasoline prices dropped by the most in nearly a year. Grocery prices rose the least since July.

--------

Watch Bloomberg Radio LIVE on YouTube

Weekdays 7am-6pm ET

Follow us on X

Subscribe to our Podcasts:

Bloomberg Daybreak

Bloomberg Surveillance

Bloomberg Intelligence

Balance of Power

Bloomberg Businessweek

Listen on Apple CarPlay and Android Auto with the Bloomberg Business app:

Apple CarPlay

Android Auto

Visit our YouTube channels:

Bloomberg Podcasts

Bloomberg Television

Bloomberg Originals