The report released by the US Bureau of Labor Statistics on Friday, February 13, showed that the annualized inflation rate of goods and services in January was lower than expected, igniting hopes that inflation in the United States may start to ease. Specifically, the Consumer Price Index (CPI) for January rose by 2.4% year-on-year, below the 2.5% expected by economists surveyed by Dow Jones.
In addition, compared to December of last year, the year-on-year inflation rate of CPI in January decreased by 0.3 percentage points, bringing inflation back to the level observed one month after President Trump announced global tariffs in April 2025. The CPI increased by 0.2% on a monthly basis in January, slightly below the economists’ forecast of 0.3%.
Excluding the more volatile food and energy prices, the core CPI in January rose by 2.5% year-on-year, in line with economists’ predictions, and increased by 0.3% on a monthly basis, consistent with expectations.
Looking at specific indicators, food prices increased by 0.2% month-on-month in January and 2.9% year-on-year; energy prices decreased by 1.5% month-on-month and 0.1% year-on-year; new car prices rose by 0.1% month-on-month and 0.4% year-on-year; prices of used cars and trucks decreased by 1.8% month-on-month and 2% year-on-year; transportation services prices increased by 1.4% month-on-month and 1.3% year-on-year; and healthcare service prices increased by 0.3% month-on-month and 3.9% year-on-year.
Housing costs, which account for about one-third of the CPI weight, increased by only 0.2% on a monthly basis in January and rose by 3% year-on-year.
According to CNBC, Heather Long, Chief Economist at Navy Federal Credit Union, stated, “This is great news for inflation.”
“Inflation rates have dropped to the lowest level since May last year, and key commodity prices like food, gasoline, and rent have also fallen. This will bring much-needed relief to the middle class and households with moderate incomes.”
The lower-than-expected inflation data has boosted expectations in the futures market for a rate cut by the Federal Reserve. According to the FedWatch tool from CME Group, traders have increased the probability of a rate cut by the Fed in June to about 83%.
Phil Orlando, Chief Market Strategist at Federated Hermes in New York, noted, “This inflation report is better than expected… This is good news for the Fed and supports our long-term view that, with the Fed’s leadership transition from Jerome Powell to Kevin Warsh, the Fed will be able to cut rates three times in about a year.”
Brent Schutte from Northwestern Mutual Wealth Management believes that this data may not have a significant impact on the overall policy direction of the Federal Reserve.
“We are essentially in a wait-and-see mode now. Everyone is waiting to see the real situation in the labor market. Although the job report is stronger than expected, the details of the non-farm employment data actually show weakness. New jobs are still mainly concentrated in healthcare and social assistance sectors, which are non-cyclical industries.”