Annual inflation drops to 2.4% in January

"In recent years, residual seasonality, along with delayed price adjustments in response to pandemic-era shocks, have led to upside CPI surprises in January, he told USA Today. These were no longer on full display this time around, further reinforcing our view (that) tariff-induced price increases on the goods side are largely behind us. But we aren't changing the baseline forecast for monetary policy based on one inflation reading."

"The index for owners' equivalent rent also rose 0.2% in January, as did the index for rent. The lodging away from home index fell 0.1% over the month, according to the report. Although prices continue to climb, inflation remains well below its 2022 peak and below levels some economists feared after President Donald Trump imposed sweeping tariffs on most U.S. trading partners last year. Still, concerns about affordability persist."

Residual seasonality and delayed price adjustments from pandemic-era shocks previously caused upside CPI surprises in January, but those effects were not present this time. Tariff-induced goods price increases are largely behind the economy, though the baseline monetary policy forecast remains unchanged after a single inflation reading. Lingering shutdown-related distortions, prospects for solid growth, and a stabilizing labor market are expected to keep the central bank on hold until June. Owners' equivalent rent and rent indexes rose 0.2% in January, while lodging away from home fell 0.1%. Core inflation slowed to 2.5% year-over-year. Gasoline fell 3.2% in January and is down 7.5% year-over-year; electricity rose 6.3% and natural gas rose 9.8% over the past year. A late-January poll found 54% view housing as unaffordable, 31% somewhat affordable, and 13% mostly affordable.

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