US inflation cools to 2.4% in January, lowest since May
What's the story
The US consumer price index (CPI) rose by 2.4% year-on-year (YoY) in January, according to data released by the Department of Labor on Friday. This is a decrease from December's 2.7% and slightly below analysts' median forecast. The CPI also recorded its lowest level since May 2025, indicating a slight easing of inflationary pressures in the world's largest economy.
Price factors
Energy costs declined, but food prices remained high
The easing of inflation in January was largely due to a 1.5% month-on-month (MoM) decline in overall energy costs, partly driven by gasoline prices. However, food costs remained 0.2% higher than December levels, although month-on-month increases have also eased. The report indicated that food prices were up 2.9% from a year ago, reflecting persistent cost pressures in this essential category despite the overall CPI decline.
Inflation stability
Core inflation stable at 2.5%
Excluding the volatile food and energy sectors, "core" inflation stood at 2.5%, just below December's level. This suggests that while overall inflation has eased, underlying price pressures remain stable. The Federal Reserve had previously noted that US consumers in lower-income groups have been hesitant to spend on non-essentials amid these economic conditions.
Rate decisions
What does this mean for the Federal Reserve?
Despite the easing of overall inflation, persistent price pressures and a stronger-than-expected labor market could give the Federal Reserve room to keep interest rates on hold for some time. The central bank cut rates three times last year but has refrained from further action, aiming to bring inflation down to its 2% target. This week's inflation data comes after a strong employment report showing better-than-expected job growth in January.