January Inflation Slows to 2.4%, Yet Sticky Service Costs Signal Summer Rate Cut Delay

2026-02-14 economy

Washington D.C., Saturday, 14 February 2026.
The January 2026 Consumer Price Index (CPI) offers a mixed signal for the U.S. economy, rising just 0.2% for an annual rate of 2.4%—slightly below economists’ expectations. While falling gasoline prices and a significant 7% drop in egg costs provided consumer relief, underlying inflationary pressures remain stubborn. Core inflation, which excludes volatile food and energy sectors, rose 0.3% month-over-month, keeping the annual core rate at 2.5%. This persistence in service-sector costs suggests the Federal Reserve will see little urgency to resume interest rate cuts immediately. Although the headline numbers mark the slowest inflation pace since 2021, the “sticky” nature of core prices indicates the path to the Fed’s 2% target remains bumpy. Consequently, markets have shifted expectations for monetary easing, now looking toward June for the next potential rate cut rather than an immediate reprieve.

Underlying Pressures Persist Despite Headline Cooling

As noted in our [earlier coverage][9], economists had hoped today’s data would signal a definitive return to pre-pandemic norms; however, the report released Friday by the Labor Department reveals a more complex reality [1]. While the headline inflation rate of 2.4% came in slightly under the consensus forecast of 2.5% [5], the data was distorted by a collection gap caused by the recent federal government shutdown [1]. Crucially, the “supercore” inflation—services excluding energy and housing—accelerated to its fastest monthly pace since January 2025 [4]. This acceleration underscores the persistence of price pressures beyond volatile commodities, complicating the Federal Reserve’s path to monetary easing.

Tariff Impacts Begin to Materialize

While consumers found relief at the pump—with gasoline prices dropping 3.2% in January [1]—and at the grocery store where egg prices plunged 7% [2], other sectors are heating up due to trade policy. Evidence suggests that the aggressive tariffs announced in April 2025 are now filtering through to consumer prices [2]. Month-over-month, prices for computers jumped 3.1%, floor coverings rose 3.2%, and laundry equipment increased by 2.6% [3]. Amazon CEO Andy Jassy noted that sellers are beginning to pass these higher costs onto consumers [3], confirming fears that trade barriers are beginning to counteract deflationary trends in goods.

Labor Market Revisions and Economic Outlook

The inflation data arrives amidst a startling revision to the labor market narrative. While the economy added 130,000 jobs in January 2026 [6], pushing the unemployment rate down to 4.3% [1], retrospective data paints a much grimmer picture of the past year. The Bureau of Labor Statistics revised the total job growth for 2025 down to just 181,000 jobs for the entire year [3][7], a stark contrast to preliminary data that had suggested significantly robust hiring [3]. This reveals that the labor market was historically weak throughout 2025, averaging only roughly 15083.333 jobs per month [2].

Sources

Monetary Policy Inflation