NEW YORK — Last month, a key measure of inflation dropped to its lowest level in almost five years. This was because apartment rental rates rose more slowly and gas prices declined. This was good news for Americans who have been dealing with rising costs over the past five years.
Inflation fell to 2.4% in January, down from 2.7% in December and not too far from the Federal Reserve's 2% target. This was a year ago. Core prices, which don't include food and energy prices since they change so often, were up only 2.5% in January from a year ago. This was down from 2.6% the month before and was the smallest gain since March 2021.
The study from Friday says that inflation is slowing down, but costs for food, gas, and apartments have gone up a lot since the pandemic. costs for consumers are still around 25% more than they were five years ago. The rise in so many different costs has maintained "affordability" at the top of the political agenda, which was a major issue in the last U.S. presidential election.
In January, consumer prices went up 0.2% from December, and core prices went up 0.3%. A big reduction in the price of used autos, which fell 1.8% from December to January, kept core inflation low.
Luke Tilley, senior economist at Wilmington Trust, said, "Inflation is still slowing down and isn't likely to go back up, which will give the Fed more room to cut rates."
The survey showed that stores are passing on more of the price of President Donald Trump's tariffs to customers for things like apparel, furniture, and appliances. But prices fell in other places, which made up for the rises. Trump has put off, gotten rid of, or given exceptions to certain of his tasks in other areas.
Prices for furniture went up 0.7% in January compared to the month before and 4% compared to a year earlier. In January, appliance prices were up 1.3%, but they are only a little bit more expensive than they were a year ago. In January, the price of clothes went up 0.3% from December. In the last year, the price of clothes has gone up 1.7%.
Prices for other services also went up. For example, airline fares went up 6.5% in January alone, after going up 3.8% in November. However, they only went up 2.2% from a year before. In January, subscriptions to music streaming services went up by 4.5%, and they are now 7.8% higher than they were a year ago.
But those gains were mostly canceled out by price drops or far slower price growth in other categories, many of which account for a larger share of Americans' expenditure.
For instance, the price of secondhand autos fell 1.8% in January, which was the greatest drop in two years. Last month, gas prices dropped 3.2%, which was the third reduction in the last four months. Prices are now 7.5% lower than they were a year ago. Grocery prices went up by only 0.2% in January, after going up by 0.6% in December. Prices are now 2.1% higher than they were a year ago. In January, hotel prices went down by 0.1%, and they are now 2% lower than they were last year.
The cost of renting and owning a home, which make up a third of the inflation index, both went up by only 0.2% in December. Rents went up by only 2.8% from a year earlier. That is a lot less than during the pandemic, when rents went up by more than 8% in 2022.
The tariffs have raised some expenses, and many economists think that corporations will pass on more of those costs to customers in the next several months. The Federal Reserve Bank of New York published a report on Thursday that indicated that U.S. businesses and consumers are paying about 90% of the tariffs' costs. This is similar to what Harvard and other economists have found in their own studies.
But the rises haven't been as widespread as many economists thought they would be.
Tilley stated that the increased tariffs have caused some people to spend less on other services, which has made businesses decrease their pricing a little bit.
"We don't think consumers can handle price increases across the board, so you don't see those price increases," he said. Last year, hiring was especially low, which slowed pay growth, and many Americans are still unhappy with the economy.
Some analysts say that the rental numbers were not accurate because the Labor Department couldn't collect the data for six weeks in October due to a government shutdown. The government put in anticipated numbers for October, which experts believe have made certain home expenses seem lower than they really are.
Companies are still having trouble with the higher expenses caused by Trump's tariffs, but some have profited from levies being put off or canceled.
Arin Schultz, the chief growth officer at Naturepedic, a company in Cleveland that makes organic mattresses, was relieved when Trump pushed back the date when import levies on upholstered furniture would go into effect until 2027. They would have made the headboards the firm imports a lot more expensive.
Schultz was happy that the tariffs on goods coming from India will go down from 50% to 18%. A lot of the cotton fabrics and bedding that Naturepedic sells come from India. He indicated that when the cut happens, the corporation might further lower some pricing.
Naturepedic's expenses nevertheless went up because of tariffs on imports from Malaysia and Vietnam, where it gets its organic latex, which can't be farmed in the US. Naturepedic has a plant in Cleveland, Ohio, where it creates its mattresses. About 200 people work there.
He stated, "We're paying more for that now," and the company boosted its costs by roughly 7% last year because of this. "Tariffs are bad." Tariffs have made our business less profitable.
As inflation creeps closer to the Federal Reserve's 2% target, it may be able to lower its main short-term interest rate even more this year, as Trump has asked it to do many times. People also think that many big-ticket purchases are still out of reach for many Americans because of high interest rates on things like mortgages and car loans.
Inflation shot up to 9.1% in 2022 because people were spending more money and supply chains got messed up following the outbreak. It started to drop in 2023, but by the middle of 2024 it had leveled off at about 3% and stayed high last year.
At the same time, salary growth has slowed down as hiring has dropped sharply. Workers don't have as much power to ask for raises because firms don't want to hire more people.
