Americans began 2026 with a rare bit of good news for their wallets: inflation cooled more than expected in January, marking the slowest pace of price increases since last spring. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) climbed just 2.4% over the previous year, down from December’s 2.7% and below economists’ forecasts of 2.5%. For many families feeling squeezed by the cost of living, it’s a welcome—if modest—sign that price pressures are finally letting up.
The January inflation report, delayed slightly by a partial government shutdown, landed just days after a jobs report also rescheduled due to the shutdown. Together, these government data releases painted a complex but cautiously optimistic picture of the U.S. economy as 2026 got underway.
On a monthly basis, the CPI rose 0.2% from December, less than the 0.3% increase economists had expected, as reported by Reuters. Core CPI, which strips out volatile food and energy prices, also increased 0.3% over the month, in line with forecasts and slightly above December’s 0.2% gain. Over the past 12 months, core inflation stood at 2.5%, just below the previous 2.6% reading. The Labor Department noted that food and shelter costs continued to rise faster than the overall inflation rate, but those increases were partially offset by a notable dip in energy prices.
Energy prices fell 1.5% in January, with gasoline dropping 7.5% over the year, according to the Labor Department’s Friday release. However, natural gas bucked the trend, rising 9.8%. The shelter index—primarily reflecting housing costs—rose 3% over the year, and food prices climbed 2.9%. Used car and truck prices fell 2%, while new vehicles edged up 0.4%. Some categories, such as appliances and electronics, saw sharper price hikes, with laundry equipment up 2.6% and computers jumping 3.1% from December to January, reflecting the lingering impact of tariffs and supply chain adjustments.
“You start to see some of the tariffs creep into some of the prices…and you see some sellers are deciding that they’re passing on those higher costs to consumers in the form of higher prices,” Amazon CEO Andy Jassy told CNBC in January. Economists believe that companies may be nearing the end of pre-tariff priced inventory, meaning more tariff-related price increases could show up in future reports.
Not all the news was grim for shoppers. Egg prices, a major source of consumer complaints last year, plummeted 7% from December to January. Beef and veal prices also declined by 0.4%. Still, the overall cost of living remains a concern, especially for lower-income Americans who feel the pinch of essential expenses like utilities, even as investors have enjoyed a 12% gain in the stock market over the past year, according to reporting by CBS News.
“I think that it’s going to take, unfortunately, a number of years for wages to continue to grow and outpace inflation to the point where people feel again like they have the breathing room that they remember from a few years ago,” Stephen Kates, a financial analyst at Bankrate, commented before the latest CPI release.
January’s inflation report also included recalculated seasonal adjustment factors, reflecting price movements throughout 2025. This technical tweak is intended to smooth out seasonal fluctuations and provide a clearer picture of underlying trends. Some economists, however, warn that the one-off price hikes at the start of the year—combined with ongoing tariff pass-through—could keep inflation sticky for a while. As Reuters noted, core CPI numbers have tended to overshoot expectations in January due to these seasonal quirks.
The Federal Reserve, tasked with keeping inflation near 2%, held its benchmark interest rate steady in January, keeping it in the 3.50%-3.75% range. The CME FedWatch tool, cited by Business Insider, showed a roughly 90% chance that rates would remain unchanged at the Fed’s March meeting. However, after the inflation report, traders nudged up the odds for a rate cut in June to about 83%, according to CNBC. The Fed itself, though, relies more heavily on the Personal Consumption Expenditures (PCE) Price Index—a measure set for release later this month—for its inflation target.
The jobs market, meanwhile, showed signs of resilience. The Bureau of Labor Statistics reported that job growth accelerated in January, with unemployment falling to 4.3% from 4.4% in December. However, the agency also revised its estimate for jobs added in 2025 sharply downward, from 584,000 to just 181,000. “The 181,000 jobs that were added across 2025 really starkly show how challenging the labor market was and how little movement on either side there really has been as both employers and workers were stuck in place and clinging to stability,” Nicole Bachaud, an economist at ZipRecruiter, told Business Insider.
Despite the recent cooling in inflation, Federal Reserve officials remain cautious. “Based on my forecast, we could be on hold for quite some time,” Federal Reserve Bank of Cleveland President Beth Hammack said Tuesday. She expects inflation to ease as the year progresses but still considers it “too high.”
President Donald Trump’s administration has taken steps to address affordability concerns, rolling back tariffs on dozens of food items and negotiating trade deals expected to lower tariffs further. Yet, as some analysts point out, the effects of past tariffs are still filtering through to consumers, especially in durable goods categories. At the same time, the administration argues that its policies are boosting supply and investment, which should help moderate inflation in the months ahead.
“We’ve got to get away from this idea that growth automatically has to be tampered down, because growth, per se, is not inflationary,” Treasury Secretary Scott Bessent said on CNBC. “It’s growth that leaks into areas where there’s not sufficient supply, and everything this administration is doing is creating more supply.”
Looking ahead, economists expect inflation to remain above the Fed’s 2% target for some time, as tariff pass-through and the dollar’s depreciation in 2025 continue to influence prices. The trade-weighted U.S. dollar fell about 7.4% last year, making imports more expensive and potentially adding to inflationary pressures.
For now, though, the January inflation report offers a measure of hope. As Heather Long, chief economist at Navy Federal Credit Union, told CNBC: “This is great news on inflation. Inflation fell to the lowest level since May and key items such as food, gas and rent are cooling off. This will provide much needed relief for middle class and moderate-income families.”
With inflation easing and the labor market stabilizing, the Federal Reserve appears content to keep interest rates steady for the time being. The coming months will test whether these trends hold—and whether Americans can finally start to feel a bit more breathing room in their budgets.