**U.S. Inflation Cools Further as Energy Prices Offset Shelter Gains**
U.S. consumer inflation continued its gradual decline in January, with the Consumer Price Index (CPI) rising 0.2% from the previous month and 2.4% year-over-year. This marks a slowdown from December’s 2.7% annual rate and slightly undercuts economists’ expectations of a 2.5% increase.
Core CPI, which excludes volatile food and energy prices, rose 0.3% in January and 2.5% over the past 12 months — its lowest annual pace since March 2021.
Shelter costs increased by 0.2% and remained the largest contributor to the monthly rise in prices. Food prices also rose 0.2%, with a breakdown showing a 0.2% increase for food at home and a 0.1% rise for food away from home. These gains were tempered by a notable 1.5% drop in the energy index, helping to moderate overall inflation.
For the Federal Reserve, the latest data supports the narrative of gradual disinflation. Although inflation is trending downward, it has not yet returned to the Fed’s 2% target. As a result, markets anticipate the Fed will maintain its current interest rate range of 3.50%–3.75% through the spring, with potential rate cuts on the table for 2026 should the trend continue.
Financial markets initially responded favorably to the cooler-than-expected inflation data. Investors saw the report as mildly dovish, with futures markets slightly increasing the odds of a rate cut this summer. Equities rebounded from early-session losses amid optimism that the Fed may be able to ease interest rates without triggering renewed inflation pressures.
