The consumer price index for January accelerated 2.4% from the same time a year ago, down 0.3 percentage point from the prior month, the Bureau of Labor Statistics reported Friday. That's the lowest inflation rate since May 2025 and better than the 2.5% annual rate economists were expecting.
Excluding food and energy, the core CPI was up 2.5%, the lowest level since April 2021. The cooldown came from some encouraging trends in key categories that matter most to everyday budgets. Gasoline prices were down about 3% on a monthly basis in January and by 7.5% on an annual basis, while shelter costs rose just 0.2% for the month, bringing the annual increase down to 3%. Food inflation for groceries and dining out was 2.9% on an annual basis in January.
The good news came with a reality check. The slowdown in inflation was relatively broad-based in January, aside from some pockets of acceleration in services, particularly transportation costs. Airline fares jumped 6.5% while egg prices fell 7% and are now down 34% over the past year after a meteoric surge.
The lower-than-expected reading helped boost the outlook for Federal Reserve interest rate cuts in the futures market. Traders raised the odds for a reduction in June to about 83%, according to the CME Group's FedWatch tool. Still, economists don't expect the January inflation report to speed up policymakers' pace of cutting, noting that lingering distortions from the shutdown in the price data, prospects for solid growth this year, and a stabilizing job market will keep the central bank on hold until June.