Inflation showed a slight easing in January, according to new data released on Friday, marking a small but notable progress in the ongoing effort to bring price increases under control. The Federal Reserve’s preferred measure of inflation rose 2.5 percent from a year earlier, a modest decline from the previous reading of 2.6 percent but still above the central bank’s 2 percent target. On a monthly basis, prices increased by 0.3 percent, consistent with the pace seen in December.
The core personal consumption expenditures (PCE) price index, which excludes volatile food and energy costs, also rose by 0.3 percent in January. Compared to the same period last year, the core PCE index is up 2.6 percent, slightly lower than December’s annual pace of 2.8 percent, as per data from the Commerce Department. These figures aligned with economists’ expectations and reinforced the Federal Reserve’s cautious approach to interest rate cuts after adjustments made in the second half of last year. The Fed’s current interest rate stands between 4.25 percent and 4.5 percent.
Consumer spending fell by 0.2 percent in January, driven by a drop in spending on goods, contrary to economists’ expectations of a 0.2 percent increase following a 0.8 percent rise in December. Meanwhile, personal income saw a 0.9 percent increase, a significant acceleration from the previous month, partly due to a cost-of-living adjustment to Social Security benefits.
Federal Reserve officials have emphasized the need for convincing evidence that inflation is retreating toward the 2 percent target before resuming rate cuts. Beth Hammack, president of the Federal Reserve Bank of Cleveland, noted on Thursday that it was “far from certain” that inflation would decline soon, citing potential risks to the inflation outlook. She supported the Fed maintaining its current stance “for some time.”
A significant weakening of the labor market could prompt policymakers to reconsider the timing or magnitude of rate cuts. Recent sentiment surveys have highlighted growing concerns about the economic outlook, with consumers becoming more pessimistic about growth and inflation. These concerns coincide with anticipation of policy changes from the White House.
President Trump has reiterated plans to impose tariffs on major trading partners, including Canada and Mexico, while threatening higher levies on China and proposing measures to protect industries such as steel and aluminum. These plans are accompanied by proposals to reduce immigration, lower taxes, cut government spending, and ease regulations.
— news from The New York Times