Inflation eased slightly in January but remained well above the Fed's target

• Core inflation (excluding food and energy) increased 0.3% monthly and 2.5% annually, in line with expectations and slightly down from December's 2.6%
• Inflation data from December 2025 through April 2026 may have a downward bias due to the Bureau of Labor Statistics using a carry-forward methodology after last fall's 43-day government shutdown interrupted data collection
• Both headline and core inflation remain above the Federal Reserve's target, creating continued challenges for policymakers balancing price stability with economic growth concerns

Summary: January 2026 Inflation Report

Key Data Points

U.S. inflation showed modest easing in January 2026, though it remains above the Federal Reserve's target. The Consumer Price Index (CPI) rose 0.2% month-over-month and 2.4% year-over-year, down from December's 2.7% annual rate. Core CPI (excluding food and energy) increased 0.3% monthly and 2.5% annually, compared to 2.6% in December.

Performance vs. Expectations

Headline inflation figures came in slightly cooler than LSEG economist forecasts, which predicted a 0.3% monthly increase and 2.5% annual gain. Core inflation metrics matched expectations precisely.

Critical Context

The Bureau of Labor Statistics warned that inflation data from December 2025 through April 2026 will be impacted by measurement issues stemming from a 43-day government shutdown in fall 2025. The BLS was unable to collect October data and had incomplete November figures, requiring a carry-forward methodology. Economists anticipate this will create a downward bias in reported inflation until spring 2026, when fresh data collection normalizes.

Market Implications

The continued elevation above the Fed's target rate presents ongoing challenges for policymakers balancing inflation control with affordability concerns. The data quality issues complicate the Fed's ability to accurately assess price trends during this period, potentially affecting interest rate decisions. Traders should exercise caution interpreting data through April 2026 due to methodological distortions.

The modest deceleration suggests inflation is cooling gradually but remains stubbornly persistent, keeping pressure on the Federal Reserve to maintain restrictive monetary policy.