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“This is great news on inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “Inflation fell to the lowest level since May and key items such as food, gas and rent are cooling off. This will provide much needed relief for middle class and moderate-income families.”
That is not spin. That is an economist acknowledging what working Americans feel every week when they swipe their debit cards.
Shelter costs, which make up more than one third of the CPI calculation, rose just 0.2% in January. The annual increase slowed to 3%. Housing has been one of the biggest drivers of inflation for years. The fact that it is finally moderating is significant.
Food prices edged up 0.2%, with most grocery categories seeing modest gains. Energy prices, however, fell 1.5% for the month. Used cars and trucks dropped 1.8%, while new vehicles rose just 0.1%. In short, the broad based price spikes that haunted families in prior years are cooling.
All of this comes after months of media warnings that Trump’s tariff policies would unleash runaway inflation. The reality has been far more contained.
“The tariffs have had a clear impact on products such as furniture and appliances, but the key items in many family budgets are cooling off,” Long added.
That matters. Americans care more about rent, food, gas, and cars than they do about abstract trade theory debated in Washington think tanks.
The annual inflation rate is now back to roughly where it stood shortly after Trump rolled out aggressive tariffs on imports in April 2025. The promised inflation explosion simply did not materialize.
That does not mean the economy is perfect. It is not.
The Atlanta Fed’s GDPNow model estimates fourth quarter growth at a strong 3.7%. That suggests the economy closed out 2025 with real momentum. But inflation is still above the Federal Reserve’s 2% target. And the labor market has shown cracks.
Employers added an average of just 15,000 jobs per month last year. That is a sluggish pace. Consumer spending, while resilient for much of the year, flattened heading into the holiday season. There are still warning lights on the dashboard.
The Federal Reserve has already cut rates three times in the second half of 2025. Most analysts expect officials to pause for now. The central bank’s leadership is also shifting, with a more hawkish rotation of regional presidents and chair designate Kevin Warsh, who is widely seen as favoring lower rates.
Treasury Secretary Scott Bessent projected confidence this week in an interview with CNBC. He argued that the administration’s policies are laying the groundwork for expansion without reigniting inflation.
“We’ve got to get away from this idea that growth automatically has to be tampered down, because growth, per se, is not inflationary.” Bessent added. “It’s growth that leaks into areas where there’s not sufficient supply, and everything this administration is doing is creating more supply.”
That is the supply side case in plain English.
It is also worth noting that the CPI report was delayed several days due to the partial government shutdown, adding to anticipation around the numbers. Investors will now turn their attention to the personal consumption expenditures price index, the Fed’s preferred inflation gauge, with the next reading scheduled for February 20.
For now, January’s report offers something rare in today’s economy. Encouragement.
After years of relentless price increases, Americans are finally seeing signs that inflation is cooling without a collapse in growth. If that trend continues, interest rate cuts may not be far behind. And the narrative that Trump’s policies would inevitably wreck the economy is looking weaker by the day.
