Inflation Data Supports Optimism as Consumers Adapt

• Shelter costs remain elevated at 3% year-over-year but show slower monthly momentum at 0.2%, suggesting housing-related pressures may be gradually easing
• Services inflation persists with food away from home up 4% and medical care services up 3.9% annually, while goods-related inflation shows clearer deceleration
• Lower-income consumers earning under $50,000 continue allocating major income portions to essentials: 37% to housing, 25% to food, and 13% to monthly bills

Market Summary: Inflation Data Supports Optimism as Consumers Adapt

Key Data Points

The Consumer Price Index (CPI) rose 2.4% year-over-year in January 2026, with a modest 0.2% monthly increase. Core inflation (excluding food, shelter, and energy) increased 2.1% annually, indicating continued moderation in price pressures.

Essential Categories Show Relief

Energy prices declined 1.5% monthly and 0.3% annually, providing meaningful relief for household budgets. Food and beverage prices rose moderately at 2.8% year-over-year, with food-at-home up 2.1% annually. Notably, egg prices dropped 7% during the month.

Shelter costs—historically the dominant inflation driver—rose 3% annually with 0.2% monthly growth, showing slower momentum. Rent increased 2.8% year-over-year, while owners' equivalent rent climbed 3.3%.

Services Inflation Remains Elevated

Price pressures persist in service sectors: food away from home up 4%, medical care services up 3.9%, and utility gas prices up 3.7% year-over-year, reflecting labor-intensive cost structures.

Consumer Behavior Adaptation

PYMNTS Intelligence research reveals 31% of consumers used credit card installment plans in the past three months, with 14% utilizing buy now, pay later (BNPL) services. Among bridge millennials, adoption reached 42%. These tools function increasingly as budgeting mechanisms rather than distress signals.

Market Implications

The data suggests a gradual normalization environment rather than acute disruption. Lower-income households (under $50,000 annually) previously allocated 75% of income to essentials—housing (37%), food (25%), and bills (13%)—making this moderation particularly significant. The combination of easing inflation in essential categories and expanded payment flexibility tools indicates consumers are successfully navigating persistent price pressures through financial innovation and behavioral adaptation.