US inflation eases more than expected to lowest since May

U.S. headline inflation slowed to a 2.4% year‑over‑year rate in the January 2026 CPI report, the lowest since May 2025 and slightly below consensus expectations of about 2.5–2.6%.

Key numbers

• Headline CPI: 2.4% year‑over‑year in January, down from 2.7% in December.

• Month‑over‑month CPI: up 0.2% in January, below forecasts of 0.3%.

• Core CPI (ex‑food and energy): 2.5% year‑over‑year, the lowest since 2021 and slightly below December’s 2.6%.

• Core month‑over‑month: up 0.3% in January.

What’s driving the slowdown

• Energy prices fell, with overall energy costs down in January and gasoline a key contributor, helping pull headline inflation lower.

• Food prices are still higher than a year ago (about 2.9% year‑over‑year), but monthly increases have moderated.

• Some categories like gas, used cars, and medical care saw outright price declines in January.

• Shelter/rent inflation remains elevated but is cooling compared with prior peaks.

Policy and market implications

• Inflation is now close to the Federal Reserve’s 2% target, but still slightly above it, especially on core measures.

• The Fed cut rates three times in 2025 and is currently on hold; this report reinforces expectations of further cuts later in 2026 if disinflation persists.

• Market‑based odds of a mid‑2026 rate cut rose significantly after the CPI release (e.g., futures implying elevated probabilities for a June move).

Political and household context

• The Trump White House is framing the report as evidence that inflation is “way down” and back on track after the earlier spike.

• Even with slower inflation, affordability concerns remain because price levels for essentials like food and rent are still notably higher than a few years ago.