The Consumer Price Index rose 0.2% on a monthly basis and 2.4% on an annual basis in January, the Bureau of Labor Statistics reported Friday, beating expectations and raising hopes that inflationary pressure may be easing in the U.S. economy.
A big drop in the cost of gasoline and some other energy sources helped keep a lid on the inflation index. Gas prices dropped 3.2% in January and were down 7.5% from a year earlier. Used car prices dropped by the largest amount in two years, falling 1.8% on the month and 2% on the year.
A measure of core inflation, which ignores volatile food and fuel prices to give a better sense of the underlying trend, came in at 0.3% on a monthly basis and 2.5% on an annual basis, meeting expectations. It was the lowest reading for annual core CPI since March 2021.
Encouraging report: Many economists were worried that January would show a sharper uptick in prices, as retailers revamped their price schedules for the new year and some tariff-related costs were passed onto consumers. That could still happen, but January’s data offers hope that the pricing effects will be relatively modest.
“On balance, we found today’s report to be encouraging,” economists at Wells Fargo said in a research note, per Bloomberg. “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.”
A bit less optimistically, Subadra Rajappa, head of U.S. research at investment bank Société Générale, said that the tariffs would likely show up in the inflation data later in the year. “I think everyone believes that tariffs are going to have a transitory effect on inflation, but the question of when those tariff effects fade is going to be more of a second-half-of-the-year story than a first-half-of-the-year story,” he said, per The Wall Street Journal.
RSM Chief Economist Joseph Bruseulas warned that some of the details in the report provide less comfort, including “notable turn-of-the-year price increases in goods sensitive to tariffs and services.” Brusuelas said inflation in some key sectors is still running over 3%, which “partially accounts for the simmering discontent among the American public on pricing and affordability.”
Taking credit: The White House celebrated the latest data, saying it proves the president’s policies are working. “This combined formula of tax cuts, of deregulation, of lowering inflation, unleashing American energy — all of the president’s actions combine to make a stronger economy [and put] more money in the pockets of the American people,” White House spokesperson Anna Kelly told Newsmax.
Many consumers, however, report that they are still struggling to pay their bills as prices remain significantly higher than they were before the pandemic. That dissatisfaction is signaled loud and clear in Trump’s dismal approval ratings on the economy.
“Donald Trump promised to lower costs ‘on day one,’” Sen. Elizabeth Warren said in a statement, channeling that consumer discontent. “But one year into his second term, food continues to get more expensive, utility costs are soaring, and housing prices are rising. Trump is making life less affordable for American families — and instead of fixing the economic pain he’s caused, he says this is the Trump economy, and he is ‘very proud’ of it.”