US inflation increased less than expected in January and ease pressure on Fed

Inflation in the US rose 0.2% in January after 0.3% increase in December, while annualized figure showed 2.4% rise last month, marking significant slowdown from 2.7% gain in December and undershooting expectations for 2.5% increase.

So-called core inflation, which excludes the volatile food and energy components, increased 0.3% in January, in line with expectations, after rising by 0.2% in December.

In the 12 months through January, core CPI increased 2.5% after advancing 2.6% in December.

Slower than expected rise in consumer prices contributes to optimism that was sparked by upbeat January labor report (nonfarm payrolls came to more than double the expectations while unemployment fell) which signaled that labor sector is stabilizing and reducing pressure on the central bank to further ease monetary policy.

Focus shifts to next week’s release of Personal Consumer Expenditure Index (PCE), Fed’s preferred inflation gauge, which will provide further details about inflation and central bank’s steps on monetary policy in the near future, after the Fed left its benchmark overnight interest rate in the 3.50%-3.75% range in the last policy meeting in December.

Economists keep slightly pessimistic stance despite recent better than expected numbers and expect inflation to pick up in 2026, with negative impact from import duties and dollar’s depreciation against its main peers, seen as key inflation drivers.