U.S. inflation fell to 2.4% in January 2026 compared to a year prior, down from 2.7% in December; core inflation dropped to 2.5%.
The slowdown in inflation came as a surprise, with January’s consumer price index (CPI) report coming in below economists’ forecasts.
Driving the news: Some of the recent inflation had been driven by tariffs imposed by the Trump administration in 2025, but their impact appears milder than anticipated so far.
- According to Fed research, about 90% of tariff costs have been borne by U.S. businesses and consumers, especially on goods like furniture and appliances.
- Companies initially shielded customers from higher costs using inventories or absorbing losses, but those options have faded, leading to higher prices in some tariff-sensitive categories.
By the numbers: In January, food prices rose modestly; energy prices fell by 1.5%; airfares surged 6.5%; housing costs rose 0.2% (with rents up 3.3% year-over-year).
- A strong January jobs report showed 130,000 jobs added and unemployment falling to 4.3%, but data revisions revealed a sluggish job market in 2025—the weakest since 2010 (excluding the pandemic year).
Go deeper: Consumer confidence has fallen to its lowest level since 2014, with concerns about tariffs and mounting everyday costs.
- Seasonal quirks in January inflation data mean that these numbers are often higher than average, prompting the Federal Reserve to await more data before making policy decisions.
What we’re watching: The Fed is expected to hold interest rates steady at its next meeting, watching for clearer signs from inflation and labor market numbers before deciding on future rate cuts.
- Further rate cuts are likely delayed until summer, with leadership at the Fed expected to change as President Trump has announced plans to nominate former Fed governor Kevin M. Warsh as chair.
- Economists project inflation will slow further in the second half of 2026, possibly paving the way for two rate cuts by year-end.
