January CPI Report Shows Inflation Slowed. Here's What That Means for Rate Cuts

Inflation's always been a hot topic for economists. But since June 2022, when the Consumer Price Index (CPI) hit its highest level in 40 years (9.1%!) and the Federal Reserve hiked interest rates to their highest level in over 20 years, more folks have become interested in the data.

This is because inflation is a measure of our purchasing power. How much things cost and how quickly prices are rising directly impacts not only how far a dollar will stretch for us, but also how far it will go for the companies that we invest in. And very few things make the stock market grumpier than a disappointing profit margin.

That's why the January CPI report, which was released ahead of Friday's open, is one of the most-anticipated events on this week's economic calendar.

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What did today's CPI report show?

According to the Bureau of Labor Statistics, headline CPI rose 0.2% month over month in January, and was 2.4% higher year over year. In December, CPI was up 2.7% annually.

Shelter was the largest factor behind the monthly increase in headline CPI, according to the BLS, rising 0.2% from December to January. Food costs were also up, though falling energy prices offset these increases.

Core CPI, which excludes volatile food and energy costs, rose 0.3% from December to January, and was 2.5% higher on a 12-month basis. In December, core CPI was up 2.6% year over year.

Economists expected the headline and core readings to both be 2.5% higher year over year.

What is CPI?

"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."

Since inflation peaked nearly four years ago, the CPI and core CPI — which excludes volatile food and energy prices — have declined. Still, inflation remains too high for the Federal Reserve.

So while the Fed has cut interest rates by 1.75 percentage points this cycle in response to a cooling labor market, it's currently expected to keep rates unchanged at its next two meetings, just as it did in January, to see how recent rate cuts are impacting inflation and employment.

One factor the Fed continues to monitor is President Donald Trump's tariff policies. While they've raised prices in some durable goods, including electronics and furniture, their broader impact has been less than many initially feared.

So what does Wall Street think about the January CPI report? Here, we look at some of what economists, strategists and other experts have to say about the results and what they could mean for the Fed and investors going forward.

What the experts say January CPI report

"On balance, we found today's report to be encouraging. The disinflation in primary shelter is continuing along, and there are few signs of an acceleration in the private sector rent measures that serve as forward-looking indicators. Tariff-induced price hikes probably have not fully worked their way through the data, but we are closer to the end than the beginning of this source of higher prices. For the Fed, a March rate cut looks highly unlikely, but the continued gradual pace of disinflation should keep prospects for additional rate cuts alive for later in the year." – Tom Porcelli, Chief Economist at Wells Fargo

"While normally these type of inflation readings would give the Fed the go ahead to continue to cut interest rates, the robust job numbers that came out on Wednesday means we seemingly are entering a 'gold medal' economy with strong GDP growth, a stabilizing job market and lower inflation across the board. Looking forward, we would expect this environment of relatively strong growth, juiced by higher tax refunds from the OBBB, an improving job market and a continued trend of lower inflation will keep interest rates in a steady range as we await Kevin Warsh's fresh perspective at the Fed, when he takes over in May." – John Kerschner, Global Head of Securitized Products and Portfolio Manager at Janus Henderson Investors

"This CPI report didn't just cool inflation — it shifted what matters next. At 2.4%, inflation is fading into the background, and behavior is doing more of the work than policy. Consumers are pushing back, companies are absorbing costs, and pricing power is thinning. Markets responded because this gives the Fed flexibility — and shifts the investor focus away from rate cuts and back to fundamentals. The next phase won’t reward macro bets, it will reward earnings discipline and balance-sheet strength." – Gina Bolvin, President of Bolvin Wealth Management Group

"CPI inflation was in line with expectations, but even with ongoing disinflation in shelter and used cars, other core goods and services still show lingering price pressure. With the labor market holding up better, that should keep the Fed on pause at least through April." – Sonu Varghese, Chief Macro Strategist at Carson Group

"AI is reshaping productivity, but it hasn't yet reshaped inflation. Until AI meaningfully offsets cost pressures, the Fed's path back to 2% won’t be frictionless. While inflation ran modestly firmer, labor market indicators continue to point to cooling without a sharp deterioration. Unemployment remained steady, reinforcing the Fed's ability to remain patient as it weighs progress on both sides of its mandate." – Gargi Pal Chaudhuri, Chief Investment and Portfolio Strategist, Americas at BlackRock

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