Key inflation measure hits level not seen in five years
Inflation eased again in January, offering Americans a rare bit of good news after years of punishing price hikes.
The government’s latest Consumer Price Index report showed inflation slowed to an annual rate of 2.4 percent in January, down from 2.7 percent in December.
That was the lowest level in nine months, and matched the level economists had predicted.
But it does not mean prices are falling. It simply means they are rising more slowly than before.
On a month-to-month basis, prices still rose 0.2 percent in January. If that pace continued for several months, it would start pushing the annual rate back up again.
So-called ‘core’ inflation - which strips out food and gas because they swing up and down more sharply - edged down to 2.4 percent from 2.6 percent. That is the lowest core reading in nearly five years, according to FactSet.
Stocks were little changed. Futures contracts tracking the S&P 500 and Nasdaq both rose 0.1 percent. The Dow Jones was up just 9 points, or 0.02 percent.
Despite prices rising at a slower rate than before, Americans are still living with the legacy of the biggest surge in prices in decades. Overall consumer prices are roughly 25 percent higher than they were five years ago.
That means groceries, gas, rent, insurance and eating out all cost far more than before the pandemic - a reality that has fueled voter anger over ‘affordability’ and squeezed household budgets.
There were some encouraging signs beneath the surface. Rental costs - one of the biggest drivers of inflation over the past two years - showed further signs of cooling. Gas prices fell in January, helping keep the headline number lower.
But grocery prices ticked higher again after jumping in December.
January is also a month when many companies reset prices for the year, from gym memberships to streaming services, which can lead to bigger-than-usual increases.
Inflation peaked at 9.1 percent in 2022 as Americans splurged after pandemic lockdowns and global supply chains struggled to keep up. It cooled through 2023 but stalled around 3 percent in mid-2024 before gradually edging lower again.
Some of last year’s data was distorted by a six-week government shutdown in the fall, which disrupted official data collection.
In November, housing costs were partly estimated rather than fully measured — something many economists said made inflation look lower than it actually was that month.
Another reason inflation has eased is that wage growth has slowed. Pay is still rising, but not as quickly as when employers were scrambling to hire. With the job market cooling and companies less eager to expand, workers have less leverage to demand large raises.
Despite the softer reading, Americans are still living with the legacy of the biggest surge in prices in decades. Overall consumer prices are roughly 25 percent higher than they were five years ago
When wage growth slows, businesses face less pressure to lift prices to cover higher payroll costs, which helps keep inflation in check.
Many economists expect inflation to continue easing this year.
‘We’re not expecting inflation to start up again by any stretch,’ said Luke Tilley, chief economist at Wilmington Trust.
Still, risks remain. Many businesses have so far absorbed at least part of the cost of tariffs on imported goods. Economists warn some of those costs could start showing up more clearly in prices in the months ahead.
If inflation continues drifting closer to the Federal Reserve’s 2 percent target, it could pave the way for interest rate cuts later this year.
Lower rates would ease borrowing costs for mortgages, car loans and credit cards — areas where Americans still feel the pinch.
