Prices for goods and services rose 2.7% in 2025, according to new data from the Bureau of Labor Statistics.

The 2.7% increase was the lowest rate of inflation since 2020, when prices rose 1.2%. The rate was slightly below the 2.9% increase in 2024 and far lower than the 8% jump in 2022.

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.

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The consumer price index weighs the costs of goods by their importance, with items such as food, shelter and energy carrying more weight. In 2025, food prices rose 3.1%, energy costs increased 2.3% and shelter costs climbed 3.2%.

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.

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In 2025, the Federal Reserve lowered interest rates three times. It remains unclear whether further rate cuts will occur in 2026.