Inflation slowed in January, aided by decreases in the price of gasoline and used vehicles, reflecting positive signals for the economy even as affordability remains front of mind for many consumers.
Consumer prices rose 0.2% in January, the Bureau of Labor Statistics reported Friday. Prices were up 2.4% from the year before, down from the 2.7% inflation rate in December. Core prices, which exclude volatile food and energy prices, rose 2.5% in January from a year earlier.
Friday’s report reflects some progress on combating inflation, which has been a major Trump administration priority given widespread consumer dissatisfaction with the economy. This readout comes on the heels of a jobs report earlier this week that also exceeded expectations.
Even so, economists are hesitant to view these indicators as a clean bill of health. The Trump administration’s aggressive tariffs on foreign imports have not raised prices as much as many analysts expected, but they will still likely add to inflation in the coming months.
“Between this report and the employment report on Wednesday, we still have some inflationary pressures,” said Stan Shipley, fixed-income strategist at Evercore ISI.
Although overall year-to-year inflation has slowed, not all price indicators painted a rosy picture. Food prices rose by 0.2% month-to-month, as did the price of housing, and airline tickets increased by 6.5%. These price increases were offset by a 1.5% fall in energy prices.
According to a New York Federal Reserve report published Thursday, U.S. businesses and consumers paid for 90% of the tariffs levied last year. The January CPI report reflected this analysis, with many goods prices associated with imports, like apparel and home furnishings, posting steady increases.
“We’ve seen that in recent months, since the summer, a gradual increase in prices related to the tariffs are passing through to the goods prices,” said Marc Giannoni, chief U.S. economist at Barclays. “Tariffs are being paid for by the most part by businesses or households; those categories that are closely tied to imports showed a sizable increase.”
Prices for many services, including transportation and medical care, also continue to stubbornly rise. This presents a lingering challenge for the Federal Reserve as the Board of Governors attempts to return inflation to its long-run target of 2.0%.
On the other hand, economists expressed surprise at the 1.8% decrease in used car and truck prices, which played an outsized role in bringing down the overall inflation rate.
“We are very much on track with pretty elevated inflation at the beginning of the year, when I look at all the other categories outside of used cars,” said Giannoni.
The Federal Reserve is expected to hold interest rates at the current level of 3.5% to 3.75% during its next meeting in March, despite political pressure to stimulate the economy by further cutting rates. If consumer spending slows later this year, or inflation continues to abate, some economists believe the Federal Reserve could cut rates in June.