Inflation cools in January, defying Wall Street expectations

Consumer prices grew at a 2.4% pace in January, falling slightly below Wall Street predictions and providing ammunition for President Trump to argue that his policies have lowered living costs for Americans.

Friday’s data gives consumers hope that America’s pesky inflation problem could be starting to ease. The inflation rate dropped to where it was in May, the month after Mr. Trump’s April 2025 announcement of steep tariffs on virtually all of America’s trading partners.

It also brings inflation back to the 2.5% range, which was the average between 2017 and 2019, during Mr. Trump’s first administration and prior to the COVID pandemic, which contributed to soaring prices. 

Combined with a better-than-expected January jobs report, the White House is crowing about the double-dose of economic good news. 

Voters have repeatedly cited high prices as their top frustration with the Trump administration, according to recent polls. Anger over the high cost of living under then-President Biden helped pave Mr. Trump’s return to the White House. Affordability is shaping up to be the key campaign issue for both parties in this year’s tight midterm elections. 

“Today’s expectation-beating CPI report proves that President Trump has defeated Joe Biden’s inflation crisis; overall inflation fell and real wages grew by $1,400 in President Trump’s first year in office. Housing inflation notably continues to cool while prescription drug prices actually fell in 2025 — with even more price relief ahead for American patients thanks to President Trump’s most Favored Nation drug pricing deals and Great Healthcare Plan,” said White House deputy press secretary Kush Desai, who predicted the American economy will ‘turbocharge in 2026.”

The data, released by the Labor Department, is a widely cited inflation gauge that measures a broad number of goods and services across the U.S. economy. A Dow Jones consensus expected prices to increase by 2.5% compared to January 2025. 

The cost of goods in January was lower than it was in December 2025 when prices grew by 2.7% compared to the previous year. Prices have been on a downward trajectory since peaking just above 3% in September.

Excluding volatile food and energy, the core Consumer Price Index stood at 2.5%, a tick below the 2.6% growth in December. It was forecast to increase by 0.3% in January, again beating analyst predictions.

In a major spot of good news, shelter costs, which include housing and rentals, rose by just 0.2%, lowering the annual increase to 3%. Energy prices also dropped, fueled by tumbling gas prices.

The report also revealed that private sector workers’ earnings increased over inflation by $1.400 last year.

However, the report found that the cost of an array of services, including airline tickets and hospital care rose. In fact, the overall cost for services rose at their fastest pace in nearly a year, which may frustrate consumers. 

January is the third straight month in which the CPI has come in below Wall Street expectations. That should give the Federal Reserve Bank’s policymakers more confidence that they can lower interest rates without risking another inflation burst.

However, the Fed does not use CPI as its primary inflation measure. Instead, it more closely follows the Commerce Department’s Personal Consumption Expenditures Price Index, which will be released on Feb. 20. Typically, the Fed looks to have inflation around 2% before lowering interest rates.