A key measure of inflation fell to nearly a five-year low last month as apartment rental price growth slowed and gas prices fell, offering some relief to Americans grappling with the sharp cost increases of the past five years.
Inflation dropped to 2.4 per cent in January compared with a year earlier, down from 2.7pc in December and not too far from the Federal Reserve’s 2pc target. Core prices, which exclude the volatile food and energy categories, rose just 2.5pc in January from a year ago, down from 2.6pc the previous month and the smallest increase since March 2021.
A report suggests inflation is cooling, but the cost of food, gas, and apartment rents have soared after the pandemic, with consumer prices still about 25pc higher than they were five years ago. The increase in such a broad range of costs has kept “affordability,” a topic that helped shape the most recent US presidential election, front and centre as a dominant political issue.
And on a monthly basis, consumer prices rose 0.2pc in January from December, while core prices rose 0.3pc. Core inflation was held down by a sharp drop in the price of used cars, which fell 1.8pc just in January from December.
“Inflation continues to decelerate and is not threatening to move back up, and that will enable more rate cuts by the Fed,” said Luke Tilley, chief economist at Wilmington Trust.
There were signs in the report that retailers are passing on more of the costs of President Donald Trump’s tariffs to consumers for goods such as furniture, appliances and clothes. But those increases were offset by falling prices elsewhere. In other areas, Trump has delayed, scrapped, or provided exemptions to his duties.
Furniture prices jumped 0.7pc in January from the previous month and are up 4pc from a year ago. Appliances rose 1.3pc in January though are only slightly more expensive than a year earlier. Clothing price rose 0.3pc in January from December and have increased 1.7pc in the past year.
Some services prices also rose: Airline fares soared 6.5pc just in January, after a 3.8pc jump in November, though they rose only 2.2pc from a year earlier. Music streaming subscriptions increased 4.5pc in January and are 7.8pc higher than a year ago.
Yet those increases were largely offset by price declines, or much slower price growth, in other areas, including many that make up a greater share of Americans’ spending.
The cost of used cars, for example, plunged 1.8pc in January, the biggest decline in two years. Gas prices fell 3.2pc last month, the third drop in the past four months, and are down 7.5pc from a year earlier. Grocery prices rose just 0.2pc in January, after a big 0.6pc rise in December, and are up 2.1pc from a year ago. Hotel prices ticked down 0.1pc in January and have fallen 2pc from last year.
Rental prices and the cost of owning a home, which make up a third of the inflation index, both rose just 0.2pc in December, while rents increased only 2.8pc from a year earlier. That is much lower than during the pandemic: Rents rose by more than 8pc in 2022.
The tariffs have increased some costs and many economists forecast companies will pass through more of those increases to consumers in the coming months.
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