The consumer price index showed that prices for the 12 months ending in January increased by 2.4%, which marked the lowest 12-month inflation rate in the U.S. since last May, according to the Bureau of Labor Statistics.
Since 2000, the average annual inflation rate has been 2.1%. The Federal Reserve’s target inflation rate is 2%, but inflation well below that level has often signaled an economic recession.
RELATED STORY | Everyday affordability remains a top concern for American shoppers
The consumer price index weighs the costs of goods by their importance, with items such as food, shelter and energy carrying more weight. As of the end of last month, food prices rose 2.9%, energy costs remained stable and shelter costs climbed 3%.
Economists had warned that tariffs implemented by President Donald Trump could significantly drive up inflation, but recent data show no substantial increase in consumer prices tied to those tariffs. Yale University’s Budget Lab reported in November 2025 that tariffs added about $1,400 to annual expenses for the median U.S. household, with costs varying by income. Clothing, electronics and metal goods were among the most impacted categories, the report said.
The consumer price index is a key factor in determining federal interest rates. The Federal Reserve weighs inflation data alongside employment figures when making rate decisions. Rising inflation or a slowing job market can lead to rate hikes.
In 2025, the Federal Reserve lowered interest rates three times. At its first meeting of 2026, the Federal Reserve opted to keep interest rates the same.
RELATED STORY | US applications for jobless benefits jump by 22,000 to 231,000 last week, the most in 2 months
The board had suggested that interest rates were likely not to change anytime soon. This report, coupled with a stronger-than-expected employment data from earlier this week, might have the Federal Reserve rethinking its strategy.
The next Federal Reserve meeting is not until March 17-18, meaning members will have one more month of economic data to examine before determining whether another interest rate drop is in store.
