In January, the pace of inflation cooled more than anticipated, indicating that price pressures are moderating, although households still face high costs for essential items such as food, healthcare, and electricity.

The Consumer Price Index (CPI) released on Friday showed prices rose 2.4% year-over-year, slightly below economists' expectations and down from December's 2.7%. This marks the smallest annual increase since May 2025. Month-over-month price increases also remained modest, continuing the gradual cooling trend that began in the second half of last year. Significant declines in energy prices, as well as used car and truck prices in January, highlighted the restrained inflationary momentum. Among these, gasoline prices fell by 3.2% from the previous month. This report is the second piece of positive economic news this week: data released on Wednesday showed that job growth last month was stronger than expected, with the unemployment rate edging down to 4.3%. However, the economic picture is complicated by special statistical treatments and the lingering effects of last autumn's government shutdown. These data distortions have affected the CPI calculation, particularly for housing costs, a major driver of inflation, where statistical gaps may have caused estimation biases.

Omair Sharif, principal at forecasting firm Inflation Insights, stated: "The impact of the government shutdown will continue to be evident for most consumer categories in the January report, and its effect on the CPI housing component will persist until April." Furthermore, macroeconomic policy choices could still exert some upward pressure on prices. The White House is pushing for a "strong running" economy this year, aiming to stimulate growth through tax cuts, interest rate reductions, and regulatory easing ahead of the midterm elections. However, some economists caution that, at least in theory, such stimulus carries the risk of re-igniting inflation. The Federal Reserve, after implementing three interest rate cuts last year, has paused on further reductions. This move was primarily to support a weakening labor market, but officials have recently indicated that future policy actions will be data-dependent. If inflation data continues to soften, it will support the case for further rate cuts; if inflation unexpectedly rebounds, particularly core inflation excluding food and energy, it would justify maintaining higher borrowing costs. Looking ahead, Goldman Sachs economists project that tariff factors will continue to exert a slight upward push on monthly prices in the coming months, with core inflation's monthly increase likely in the **0.2% to 0.3% range. Subsequently, as rental price increases slow, the labor market weakens, and tariff effects fade, the monthly increase is expected to subside to around 0.1% to 0.2%**. By the end of 2026, annual core inflation—whether measured by the CPI or the Fed's preferred gauge—is forecast to fall to around 2.1%, nearing the central bank's 2% target level.