Inflation cooled in January, offering some relief to Americans still weighing sharp increases in the cost of living over the past five years, according to Friday’s data. A widely watched inflation measure fell to 2.4% from a year earlier, and core prices rose 2.5%, suggesting price pressures are easing even as affordability remains a central political concern. The report also showed that the mix of household costs is shifting, with some categories climbing while others—particularly energy and used vehicles—came down.
The monthly results showed consumer prices rose 0.2% in January compared with December, while core prices increased 0.3%, the Associated Press reported. The core figure was kept down by a sharp drop in used car prices, which fell 1.8% from December, the data described in the AP story said. While Friday’s inflation reading pointed to cooling trends, the report also underscored that many prices are still far above their pre-pandemic levels.
Gas prices fell 3.2% last month and were down 7.5% from a year earlier, helping pull down overall inflation. Used cars also fell again, dropping 1.8% in January from December and marking the biggest decline in two years. Other categories remained mixed: grocery prices rose 0.2% in January after a 0.6% increase in December, and were up 2.1% from a year earlier, while hotel prices ticked down 0.1% in January and fell 2% from last year.
Housing costs provided another sign of cooling, even if the overall picture has not felt easier for many households. Rental prices and the cost of owning a home both rose 0.2% in December, while rents increased 2.8% from a year earlier—far below the pace seen during the pandemic, when rents rose by more than 8% in 2022. The report also noted that apartment rental growth slowed, contributing to the inflation deceleration.
Still, the data showed increases in some consumer spending areas during the same month. Furniture prices jumped 0.7% in January from December and were up 4% from a year earlier. Appliances rose 1.3% in January, while clothing prices rose 0.3% in January and were up 1.7% over the past year. Services costs also climbed in places, with airline fares up 6.5% in January after a 3.8% increase in November, and music streaming subscriptions rising 4.5% in January and 7.8% higher than a year earlier.
The AP story tied part of the inflation narrative to tariffs and how businesses pass those costs to customers. It said there were signs retailers were passing on more of the costs of President Donald Trump’s tariffs to consumers for goods such as furniture, appliances, and clothes, though those increases were offset by falling prices elsewhere. It also reported that Trump delayed, scrapped, or provided exemptions to some duties.
Economists also pointed to findings from the Federal Reserve Bank of New York that described how tariff costs are being absorbed. The story said a study released Thursday by the New York Fed found U.S. companies and consumers are paying nearly 90% of the tariffs’ costs, echoing similar findings in studies by Harvard and other economists. Luke Tilley, chief economist at Wilmington Trust, said: “Inflation continues to decelerate and is not threatening to move back up, and that will enable more rate cuts by the Fed,” according to the AP report.
The report also described reasons why the easing trends might not be uniform. It said tariffs have increased some costs and that many economists forecast companies will pass through more of those increases to consumers in coming months, while also noting that increases have not been as broad-based as many economists feared. Tilley told the AP story that higher tariffs have pulled some consumer spending away from other services, which has forced companies to keep those prices a bit lower.
Some economists said housing data may have been distorted by a government disruption earlier in the collection process. The AP report noted that rental figures were distorted by October’s six-week government shutdown, which interrupted the Labor Department’s gathering of data; it said the government plugged in estimated figures for October that economists say artificially lowered some of the housing costs.
The story included an example from the mattress industry showing how different tariff decisions can affect prices. Arin Schultz, chief growth officer at Naturepedic, told the AP that the company breathed a sigh of relief when Trump postponed import duties on upholstered furniture until 2027, which would have pushed up the cost of some headboard components. Schultz also said Naturepedic’s costs jumped because of duties on imports from Vietnam and Malaysia used for its organic latex, and that the company raised its prices about 7% last year as a result. “We’re paying more now for that,” Schultz said, adding: “Tariffs are awful. We are less profitable now as a company because of tariffs,” the AP report said.
Even with cooling inflation, the AP story said high borrowing costs still contribute to an affordability perception. It reported that inflation getting closer to the Federal Reserve’s 2% target could allow the central bank to cut its key short-term interest rate further this year. It also noted that inflation surged to 9.1% in 2022 as consumer spending soared amid supply-chain disruptions after the pandemic, then fell in 2023 and leveled around 3% in mid-2024 before staying elevated last year.