January US inflation undershoots forecasts, reducing pressure on the Federal Reserve

US inflation rose by 0.2% in January, following a 0.3% increase in December. On an annual basis, consumer prices advanced 2.4%, marking a notable slowdown from December’s 2.7% pace and coming in below expectations for a 2.5% rise.

Core inflation, which excludes the volatile food and energy components, increased 0.3% in January, matching forecasts, after a 0.2% gain in the previous month. Over the 12 months through January, core CPI rose 2.5%, easing slightly from 2.6% in December.

The softer-than-expected headline reading reinforced optimism generated by the strong January labor report, where nonfarm payrolls significantly exceeded expectations and unemployment declined. Together, the data suggest the labor market is stabilizing and may reduce pressure on the Federal Reserve to further ease monetary policy.

Attention now turns to next week’s release of the Personal Consumption Expenditures (PCE) Index, the Fed’s preferred inflation measure, which is expected to provide clearer guidance on price trends and the near-term policy outlook. This follows the central bank’s decision at its December meeting to maintain the benchmark interest rate within the 3.50%–3.75% range.

Despite the recent improvement in data, economists remain cautiously pessimistic, anticipating that inflation could reaccelerate in 2026. Import duties and the US dollar’s depreciation against major peers are viewed as potential drivers of renewed price pressures.