Inflation dropped to 2.4% in January compared with a year earlier, down from 2.7% in December and not too far from the Federal Reserve’s 2% target. Core prices, which exclude the volatile food and energy categories, rose just 2.5% in January from a year ago, down from 2.6% the previous month and the smallest increase since March 2021.
On a monthly basis, consumer prices rose just 0.2% in January from December, while core prices rose 0.3%. Core inflation was held down by a sharp drop in the price of used cars, which fell 1.8% just in January from December.
Gas prices fell 3.2% last month, the third drop in the past four months, and are down 7.5% from a year earlier. Grocery prices increased 0.2% in January, after a big 0.6% rise in December, and are up 2.1% from a year ago.
If inflation gets closer to the Federal Reserve’s target of 2%, it could allow the central bank to cut its key short-term interest rate further this year, as Trump has repeatedly demanded. High borrowing costs for things like mortgages and auto loans have also contributed to a perception that many big-ticket items remain out of reach for many Americans.
U.S. markets immediately reversed course early Friday and futures moved into positive territory. The yield on the 10-year Treasury note, which heavily influences mortgage rates, declined on the expectation that lower inflation will allow the Fed to cut rates.
