US consumer prices undershoot forecasts in January, core inflation firms

US consumer prices rose less than expected in January, easing headline inflation, but core prices firmedUS consumer prices rose less than expected in January, signalling a further easing in headline inflation, though underlying price pressures strengthened—a combination that could give the Federal Reserve room to keep interest rates unchanged in the near term.Data released by the US Bureau of Labor Statistics showed the Consumer Price Index (CPI) increased 0.2 per cent month-on-month in January, following a 0.3 per cent rise in December. Economists polled by Reuters had expected a 0.3 per cent increase.STORY CONTINUES BELOW THIS ADOn a year-on-year basis, inflation cooled to 2.4 per cent from 2.7 per cent in December, largely reflecting base effects as higher readings from early 2025 dropped out of the annual calculation.More from BusinessCore inflation edges higherStripping out volatile food and energy components, core CPI rose 0.3 per cent in January, up from a 0.2 per cent increase in December. Annual core inflation stood at 2.5 per cent, compared with 2.6 per cent in the previous month.Economists note that January often sees stronger core readings as businesses implement start-of-year price hikes. Seasonal adjustment recalibrations released with the January report also influenced the data, following price distortions last year linked to a federal government shutdown that disrupted October data collection.Underlying price pressures were evident in services categories including shelter, medical care and airline fares, even as energy prices declined during the month.Energy down, food steadyEnergy prices fell 1.5 per cent in January, led by a 3.2 per cent drop in gasoline. However, electricity and natural gas costs remained elevated on a yearly basis.Food prices rose 0.2 percent over the month, with grocery prices also up 0.2 percent. Food away from home continued to post stronger annual gains, highlighting persistent services inflation.Policy implicationsThe US central bank, which targets 2 per cent inflation based on the Personal Consumption Expenditures (PCE) price index, left its benchmark overnight rate unchanged at 3.50–3.75 per cent last month.The January CPI data come alongside signs of a stabilising labour market. Government figures earlier this week showed job growth accelerated and the unemployment rate dipped to 4.3 per cent in January from 4.4 per cent in December.With inflation still above target and core prices firming, economists say the Fed is likely to remain cautious. Some analysts also expect inflation to edge higher later this year, citing the pass-through of import tariffs and last year’s 7.4 per cent decline in the trade-weighted US dollar.STORY CONTINUES BELOW THIS ADEnd of Article