The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in January, one-tenth below the consensus forecast in Bloomberg. On a twelve-month basis, CPI was up 2.4% (down from 2.7% the month prior).
- Energy costs fell 1.5% m/m, thanks to a sharp pullback in prices at the pump (-3.2% m/m). Food prices (0.2% from 0.7% in December) also moderated in January.
Excluding food and energy, core inflation rose 0.3% m/m, following softer gains the two prior months and more than the 0.2% m/m average increase over the prior twelve-month period. However, favorable base effects pushed the year-on-year change down to 2.5% (from 2.6% in December).
Price growth on services heated up, rising 0.4% m/m, or the fastest monthly increase since July 2025. Primary shelter costs came in on the cooler side – rising 0.2% m/m – while price growth of non-housing services firmed. Air fares (+6/5% m/m) rose sharply last month, while most other categories tied to discretionary spending were higher.
Core goods prices were flat for a second consecutive month, as a sharp pullback in used vehicle prices (-1.8% m/m) offset smaller gains in household furnishings, apparel, medical commodities, and recreational goods.
Key Implications
All told, January’s inflation report came in a touch cooler than expected. But there were plenty of cautionary signs for the months ahead. Core goods would have firmed if not for the sharp pullback in used vehicle prices, as most other categories showed price growth last month. Moreover, the softer gain in primary shelter could still be related to post-government shutdown distortions (see Q&A Question 3), suggesting there could be some giveback in the months ahead.
We expect some firming in inflationary pressures over the coming months, as businesses continue to pass on increasingly more of the tariff cost. There’s also a risk of a stronger demand-side push on inflation, as OBBBA tax cuts, easier financial conditions, and a stabilizing labor market provide tailwinds to consumer spending. It’s for this reason that we think that the Fed will stay on the sidelines until at least the summer.
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