Consumers are still sour despite inflation cooldown
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Illustration: Maura Losch/Axios
Inflation has fallen back to near where it stood before the "Liberation Day" surge. Yet the sour mood that helped define the spike lingers in checkout lines and household budgets across the country.
Why it matters: This highlights an important disconnect in the key inflation indicators. Friday's big Consumer Price Index cooldown is a relief for financial markets and Federal Reserve officials.
- Yet a slowdown in prices in the aggregate is likely little comfort to consumers, who are frustrated that high prices have persisted over the last five years and are still creeping higher.
What they're saying: "Progress toward the Fed's 2% target has been slow, but meaningful," Jim Baird, chief investment officer at Plante Moran Financial Advisors, wrote in a client note, adding that Friday's data was positive at the margin.
- "That's small solace for many households that continue to absorb the collective impact of surging prices since 2020."
By the numbers: CPI rose 2.4% in the 12 months through January, down from 2.7% in December and the lowest since last May. Core CPI, which strips out food and energy prices, increased 2.5%, the smallest gain since March 2021.
Zoom in: Sharply lower energy prices put downward pressure on the headline CPI index. Cost pressures eased for some other key consumer categories, at least for January.
- Take grocery prices: After rising 0.7% in December — the sharpest monthly gain since 2022 — the "food at home" category rose just 0.2%. The cost of dining out rose at a similar pace, cooling from the previous month.
- Used car and truck prices declined nearly 2%, the second month of outright price declines. And shelter prices, which have kept upward pressure on inflation in recent years, rose just 0.2% — half the pace seen in December.
Yes, but: Even if inflation pressures have eased in recent months, the high price levels frustrating consumers are evident if you consider how much prices have gone up over the past year.
- That's where some tariff-related price hikes are evident, even if it doesn't seep into headline CPI: Beef prices declined 0.9% last month, but they are still up a whopping 15% compared with a year ago. Roasted coffee gained just 0.1% last month, but costs are up 17% from last January.
- "The caveat is that much of the disinflation is coming from sharply lower energy prices," wrote Fitch Ratings economist Olu Sonola.
- "Tariff-induced increases are visible in the details and will raise some eyebrows."
The intrigue: The CPI data comes amid a new warning about tariff-passthrough effects, pushing against the administration's narrative that levies are being paid for by foreign producers.
- The New York Fed estimated that roughly 90% of the tariff burden fell on U.S. companies and consumers in 2025.
- Fed chair Jerome Powell told reporters last month that a "good part of [tariff costs haven't] been passed through to consumers yet."
What to watch: Even amid some good news on headline inflation, the administration has moved to roll back some tariffs to help ease pressure on consumer budgets.
- The Financial Times reported overnight that President Trump was considering easing some tariffs on steel and aluminum, though trade hawk and White House adviser Peter Navarro told CNBC that the report was false.
