U.S. consumer prices rise less than expected in January

U.S. consumer prices increased less than expected in January, but underlying inflation firmed as businesses raised prices at the start of the year, which together with a stabilizing labor market could allow the Federal Reserve to keep interest rates unchanged for a while.

The Consumer Price Index rose 0.2 per cent last month after an unrevised 0.3-per-cent gain in December, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast the CPI increasing 0.3 per cent.

With January’s CPI report, the BLS published recalculated seasonal adjustment factors to reflect 2025 price movements.

The report was slightly delayed by last week’s three-day shutdown of the federal government. A longer shutdown last year prevented the collection of prices for October, causing volatility in the CPI data. Economists expected the volatility faded in January’s report.

In the 12 months through January, the CPI increased 2.4 per cent. The slowdown in the year-on-year inflation rate from 2.7 per cent in December mostly reflected last year’s higher readings dropping out of the calculation.

The U.S. central bank tracks the Personal Consumption Expenditures Price Indexes for its 2-per-cent inflation target. Both measures are running well above target. The government reported this week that job growth accelerated in January and the unemployment rate fell to 4.3 per cent from 4.4 per cent in December.

The Fed last month left its benchmark overnight interest rate in the 3.50 per cent to 3.75 per cent range.

Excluding the volatile food and energy components, the CPI increased 0.3 per cent after rising by an unrevised 0.2 per cent in December.

Core CPI numbers have overshot expectations every January, with economists saying the seasonal adjustment factors, the model used by the BLS to strip out seasonal fluctuations from the data, were not fully accounting for the one-off turn-of-the-year price increases.

Last month’s increase likely reflected the one-off turn-of-the-year price hikes as well as the tariff pass-through from President Donald Trump’s broad tariffs. In the 12 months through January, the so-called core CPI increased 2.5 per cent after advancing 2.6 per cent in December. That also reflected last year’s higher readings dropping out of the calculation.

Economists expect inflation to pick up for a while this year, citing the pass through from import duties as well as the dollar’s depreciation last year against the currencies of the United States’ main trade partners. The trade-weighted U.S. dollar fell about 7.4 per cent last year.