The January CPI report is the best inflation news we’ve had in months. Here’s why.

The January inflation reading offered encouraging signs for consumers and the U.S. economy, with the Consumer Price Index coming in below Wall Street expectations and falling to its lowest level in nine months.

Although Americans continue to grapple with elevated prices and cost-of-living concerns, the trajectory of inflation in recent months offers some relief for consumers, experts said. Inflation rose at an average annual rate of 2.6% from November through January — down from nearly 2.9% from July through September. (October’s CPI report was canceled due to the government shutdown.) 

“Inflation fell to the lowest level since May, and key items such as food, gas and rent are cooling off,” Heather Long, chief economist at Navy Federal Credit Union, said in an email. “This will provide much-needed relief for middle-class and moderate-income families.”

Here are five takeaways from today’s CPI report, which tracks changes in prices of goods and services across the U.S.

Inflation came in cooler than expected 

Friday’s report showed that inflation in January dipped to 2.4% on an annual basis, a shade below economists’ forecasts of 2.5%.

The softer reading surprised some experts because January CPI data often comes in hotter than other months due to seasonal factors and more rapid price changes at the start of the year, the Federal Reserve Bank of Boston said in an analysis earlier this month.

To be sure, while inflation is cooling, prices continue to rise faster than economists and the Federal Reserve would like. 

“They’re going up at a slower pace, and that’s what we want, but they’re still going up,” Stephen Kates, a financial analyst at Bankrate, told CBS News ahead of the CPI release.

So-called core inflation, which strips out the more volatile food and energy prices, rose 2.5% year over year, a sign that prices remain somewhat sticky.

Some grocery costs eased

Price hikes at the grocery store are easing, providing some relief for consumers. Food at home — a category that tracks food bought at grocery stores and other retailers for consumption at home — rose 2.1% from a year earlier, cooler than the overall CPI rate.

Grocery items that dropped in price last month compared with a year ago include cheese, fresh fruit and eggs, with the latter declining 34%. To be sure, some foods are still seeing significant price hikes, including ground beef and roasted coffee, with the cost of both items up 17% in January from a year ago.

Prices at restaurants and other eateries rose 4% last month from a year earlier, exceeding the overall inflation rate. 

Lower prices at the pump

One standout from Friday’s report was energy prices, which showed a notable deceleration and helped lower the overall inflation reading, EY-Parthenon senior economist Lydia Boussour said in an email. 

Within the energy category, gasoline prices dipped 7.5%. 

By contrast, electricity prices continue to climb sharply, rising 6.3% year-over-year. That comes amid an increase in electricity demand, partly from data centers powering the spread of AI services, that has driven up consumers’ utility bills. Those price pressures are likely to persist. The U.S. Energy Information Administration forecasts residential electricity prices will rise nearly 4% in 2026.

Housing costs slowed

Housing costs, categorized as “shelter” in the CPI, slowed in January. The category rose 3% from a year earlier, down from 3.2% in the prior month.

One caveat: Experts say that the year-over-year shelter figures have been softer in recent months, likely due to the lingering effects of the government shutdown in fall 2025, which disrupted federal data collection. 

“The Bureau of Labor Statistics did not have data from October, and they had to impute what they think it was going to be, and that has very likely created some artificially low numbers on housing,” Kates explained, adding that he expects numbers to normalize around March or April. 

Fed likely to hold off on March rate cut

Many experts think the Federal Reserve will leave its benchmark interest rate unchanged at its March meeting, despite today’s CPI report showing inflation edging closer to the central bank’s goal of a 2% annual rate. 

While January’s CPI data will be “welcome news for the Federal Reserve,” there may be concerns about some data distortions remaining from last fall’s government shutdown, noted Bernard Yaros, lead economist at Oxford Economics, in a Friday report. 

Meanwhile, other inflation gauges suggest it’s too early for the central bank to declare victory. Although the latest CPI numbers show that core inflation is fading, the Fed’s preferred inflation gauge — Personal Consumption Expenditures, another measure of consumer spending — remains stuck at nearly 3%, well above the central bank’s 2% annual target.

The Fed will also likely be monitoring the labor market for signs of stabilization, Yaros added. Oxford is forecasting two rate cuts in 2026, at the Fed’s June and September meetings.