U.S. Inflation Slows to 2.4%, While Core CPI Hits Its Lowest Level Since 2021
The soft-landing scenario — a gradual slowdown in inflation — which had been sidelined last year by the trade war, is gaining traction.
Quick overview
- U.S. inflation decreased to 2.4% year-over-year in January, down from 2.7% in December, with core inflation at its lowest since March 2021.
- Food and energy prices contributed significantly to the decline, with food prices rising only 0.2% monthly and energy prices falling 1.5%.
- Analysts are increasingly expecting three 25-basis-point rate cuts in 2026, following positive economic data and easing inflation.
- The housing component showed minimal growth, indicating gradual improvements in housing affordability.
Food, energy, and housing were key drivers behind the decline in the overall inflation rate. Among analysts, expectations are rising for three 25-basis-point rate cuts in 2026.
U.S. inflation came in at 2.4% year-over-year in January, slightly below market expectations and down from 2.7% in December. However, the most striking figure was the slowdown in core inflation, which fell to 2.5%, its lowest level since March 2021.
The data comes from the Consumer Price Index (CPI) released by the U.S. Bureau of Labor Statistics (BLS). On a monthly basis, CPI rose 0.2%, below the 0.3% forecast by the market and also lower than December’s monthly increase.
Breaking the data down by components, food prices slowed to a 0.2% monthly increase from 0.7% in December, while energy prices fell 1.5%, mainly due to lower fuel costs. Among other key categories, transportation declined 0.3% month-over-month, while medical care rose 0.3%.
Analysts noted that the housing component—“one of the heaviest-weighted categories and one of the most resistant to disinflation in recent months”—rose just 0.2% monthly, down from 0.4% in December, driven by easing pressure in rental prices.
One of the most notable figures in the report was the Owners’ Equivalent Rent (OER) measure, which stood at 3.25% year-over-year, its lowest level since October 2021, signaling that housing affordability continues to improve—albeit at a very gradual pace.
Fed: Markets Renew Hopes for More Than Two Rate Cuts
Analysts argued that the inflation report “is clearly positive because, after Wednesday’s strong January employment report — and amid a run of economic data that has consistently surprised to the upside — it shows that inflation is easing even as economic growth is accelerating.”
In that context, they noted that the market “continues to price in the next 25-basis-point cut in the Federal Reserve’s policy rate for July, followed by another in December, although the probability of three 25-basis-point cuts in 2026 is now increasing.”
The soft-landing scenario — a gradual slowdown in inflation — which had been sidelined last year by the trade war, is once again gaining traction, supported by decelerating inflation and a labor market that remains resilient.
The strong inflation data gives the Fed greater room to cut rates more aggressively. In fact, analysts added that “the implied probability in futures markets of a 75-basis-point cumulative rate cut by year-end, which had declined after Wednesday’s solid job report, jumped from 36% yesterday to 59% today.”
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
- Read our latest reviews on: Avatrade, Exness, HFM and XM
