Washington (United States) (AFP) – Consumer inflation in the United States cooled slightly more than expected in January, government data showed Friday, as energy prices dipped. Analysts say the figure allows the US central bank to cut interest rates again later this year, but warn that policymakers need to see sustained improvement in order to do so — despite President Donald Trump’s insistence that there is virtually no inflation.
The consumer price index (CPI) rose 2.4 percent year-on-year, the Department of Labor said, down from December’s 2.7 percent and slightly below analysts’ median forecast. This was the lowest level since May 2025. Trump lauded the report, telling reporters that inflation was “way down, and we have it back on track.” Yet, affordability worries have come to the fore in recent months as price increases in areas like food weighed on households, and as Trump’s tariffs flowed through the world’s biggest economy.
Although tariffs have not triggered a broad inflation surge, firms have reported higher business costs. Many companies have tried to soften the blow by stocking up on inventory ahead of planned levy hikes and avoided passing on additional costs in full to consumers. Late last year, Trump also broadened a slate of tariff exemptions, particularly on agriculture imports, as he came under pressure from voters grappling with soaring costs of living.
– ‘Encouraging news’ –
For now, CPI was up 0.2 percent on a month-on-month basis in January, inching down from December’s 0.3 percent rise. This was helped by a 1.5 percent month-on-month slide in overall energy costs, in part due to gasoline. But food costs remained 0.2 percent higher than in December, and were up 2.9 percent from a year ago. Still, “this is encouraging news for many American families that have been struggling,” said Navy Federal Credit Union chief economist Heather Long in a note.
US consumers in lower income groups have shown reluctance to spend on non-essentials, the Federal Reserve noted last month. “The tariffs have had a clear impact on products such as furniture and appliances, but the key items in many family budgets are cooling off,” Long said. “Gas prices, used cars, and medical care all declined in January,” she added. But Diane Swonk of KPMG warned that disruptions from a recent government shutdown are likely suppressing year-over-year inflation measures. “What’s important is that goods prices still increased,” she told AFP.
Excluding the volatile food and energy sectors, core inflation was 2.5 percent, a touch below December’s level. “Even though consumers have seen, on average, the wages outpace inflation in recent years, it takes a long time to regain ground lost from those compounding price levels,” Swonk said.
– ‘More bumps’ –
Swonk noted that despite various tariff threats since the beginning of the year, the Trump administration’s actions have been “going in the other direction to try to mitigate those effects.” These should bear fruit towards the back half of the year. “We’ve still got some more bumps in inflation to endure, which is why the Fed will welcome this news, but they’re not likely to cut on it,” she said of Friday’s data. “They need to see more sustained improvement in inflation to feel comfortable about where we’re going.”
Although overall inflation has cooled, underlying price pressures, coupled with a jobs market that has proven more resilient than expected, could allow the Fed to continue holding interest rates steady for a while. The US central bank made three rate cuts last year but has been holding off further action, seeking to bring inflation back down to officials’ two-percent target.
© 2024 AFP
