US inflation falls to lowest level since May, Boosting rate cut hopes

US consumer inflation cooled more than expected in January, easing to its lowest level since May 2025 as energy prices declined, according to government data released Friday.

The consumer price index (CPI) rose 2.4 percent year-on-year, down from 2.7 percent in December and slightly below analysts’ forecasts, the Department of Labor said. On a monthly basis, prices increased 0.2 percent, compared with a 0.3 percent rise in December.

The drop was largely driven by a 1.5 percent month-on-month decline in overall energy costs, partly due to lower gasoline prices. However, food prices remained elevated, rising 0.2 percent from December and 2.9 percent from a year earlier.

The latest figures have fueled expectations that the Federal Reserve could consider cutting interest rates later this year. Still, analysts caution that policymakers will likely wait for sustained progress before making any move.

President Donald Trump welcomed the report, saying inflation was “way down” and back on track. Despite the easing trend, affordability concerns persist, particularly as higher food prices continue to strain household budgets.

Tariffs have not sparked a broad surge in inflation, though some businesses report increased costs. Many firms have built up inventories ahead of potential levy hikes and avoided fully passing on higher expenses to consumers. Trump also expanded certain tariff exemptions late last year, especially for agricultural imports, amid voter concerns over the cost of living.

Core inflation, which excludes food and energy, stood at 2.5 percent in January, slightly lower than in December. Economists noted that while wage growth has outpaced inflation in recent years, households are still feeling the cumulative impact of past price increases.

Analysts say that although the recent data is encouraging, the Federal Reserve is likely to remain cautious. With underlying price pressures and a resilient labor market still in play, the central bank may hold interest rates steady until clearer signs of sustained improvement emerge.

The Fed cut rates three times last year but has paused further action as it works to bring inflation closer to its two-percent target.