US Inflation Drops to 2.4% in January Amid Tariff-Driven Price Swings
US inflation moderated in January, falling to an annual rate of 2.4%, according to data released by the US Bureau of Labor Statistics. This easing follows significant price fluctuations last year, largely attributed to tariffs implemented under former President Donald Trump.
Monthly Price Movements and Core Inflation Trends
Prices increased by 0.2% from December to January, as measured by the consumer price index (CPI), which tracks the cost of a basket of goods and services. Core CPI, which excludes volatile food and energy sectors, rose by 0.3% over the same period. Economists had anticipated a slight easing, with predictions aligning closely around a 2.5% annual rate.
Historical Context and Volatility in 2025
Last year, inflation experienced notable volatility, declining to 2.3% in April—the lowest level in over four years—before gradually climbing to 3% by September. By November and December, the rate had settled at 2.7%, indicating a turbulent economic landscape influenced by policy shifts.
Federal Reserve's Cautious Stance on Interest Rates
Wall Street is closely monitoring this inflation report to gauge its potential impact on interest rates. The Federal Reserve opted against a rate cut in January, and its direction remains uncertain ahead of the next board meeting in March. Fed Chair Jerome Powell noted that Trump's tariffs are still permeating the economy, expecting them to cause a one-time price increase before stabilising.
"The expectation is that we will see the effects of tariffs flowing through goods prices, peaking, and then starting to come down," Powell said. "That's what we expect to see over the course of this year."
Labor Market Dynamics and Revised Job Figures
The Fed is also observing the labor market, which showed strength in January. However, overall jobs growth for 2025 was revised downward, with 181,000 jobs added compared to 2 million in 2024. The White House has downplayed these figures, with Trump highlighting gross domestic product growth and price stability from last fall.
Political Implications and Voter Sentiment
Recent polling indicates a decline in public approval of Trump's economic management. A February Economist/YouGov poll revealed that only 37% of American voters approve of his job performance, the lowest across his terms so far. While immigration issues contributed to this dip, Trump's lowest approval rating was on inflation, posing challenges for Republicans in upcoming midterm elections.
White House Initiatives to Address Affordability
In response to growing concerns over prices, the Trump administration has recently introduced measures aimed at improving affordability. These proposals target housing prices, credit card debt, and drug costs, reflecting an awareness of voter weariness regarding economic policies.
