January 2026 CPI Slows, Remains Above Fed Target
January 2026 CPI slowed while core services rose, keeping inflation above the Fed target and leaving monetary policy data-dependent for traders.
KEY TAKEAWAYS
- Headline CPI slowed to 2.4% YoY after a 0.2% monthly gain.
- Core CPI rose 0.3% month-over-month and 2.5% YoY, led by services.
- Carry-forward data treatment likely biases CPI downward through spring 2026 and keeps policy data-dependent.
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The January 2026 consumer price index (CPI), released Feb. 13, showed inflation easing from December while core costs rose, a combination that keeps the Federal Reserve’s policy outlook data-dependent and complicates near-term market expectations.
Headline and Core Inflation Readings
The CPI for the 12 months ended January 2026 rose 0.2% month-over-month and 2.4% year-over-year, slowing from December 2025’s 2.7%. The report came in below the consensus forecast of 0.3% monthly and 2.5% annually.
Core CPI, which excludes volatile food and energy prices, increased 0.3% month-over-month and 2.5% year-over-year, down from 2.6% the prior month. The monthly gain was driven mainly by services inflation, while lower gas prices helped restrain the headline figure.
Policy Context and Data Caveats
Data-collection interruptions caused by a 43-day federal government shutdown in fall 2025 were addressed using a carry-forward method, likely biasing inflation readings downward through spring 2026.
The Federal Open Market Committee kept the federal-funds target range at 3.5%–3.75% in January and described future rate decisions as data-dependent. Meanwhile, personal consumption expenditures (PCE) inflation ran hotter, at about 2.9% overall and 3.0% on a core basis for the 12 months ended December 2025, exceeding the CPI figures.
Federal Reserve Vice Chair Philip N. Jefferson said on Feb. 6 that disinflation had stalled mainly due to tariffs on some goods but expects it to resume in 2026 as those tariffs fully pass through. He also cited roughly 2.2% economic growth and described policy as neutral.
The mix of a softer headline reading, firmer services costs, and the carry-forward data treatment leaves policymakers sensitive to small swings in upcoming monthly inflation reports or revisions, which could significantly influence near-term rate expectations.
