US core inflation picks up as expected in January on service costs

Underlying US inflation accelerated slightly at the start of the year, in line with expectations, as a pickup in services costs more than offset stable goods prices.

The core consumer price index, which excludes often-volatile food and energy costs, increased 0.3% from December, the most since August, according to Bureau of Labor Statistics data out Friday. At the same time the core CPI rose from a year ago by the least since 2021.

The slight pickup in inflation reflected higher prices for airline fares, personal care, recreation, medical care and communication. However, prices of used cars and trucks, household furnishings and auto insurance decreased last month.

Stock futures fluctuated and Treasury yields fell after the report.

January is a month when companies typically adjust prices, and some economists had anticipated businesses would also pass through more tariff-related costs to consumers last month. While some categories such as apparel and sporting goods increased, the report suggests companies are largely shielding American shoppers.

Alongside recent indications of a stabilizing labor market, Federal Reserve officials will likely want to see further inflation progress before lowering interest rates. Traders see roughly even odds the central bank will next lower borrowing costs at their June meeting after three straight cuts in late 2025.

With the latest data, the Bureau of Labor Statistics also incorporated new seasonal adjustment factors, with the previous five years’ of data subject to revision. The agency also adjusts the relative importance of the individual price categories that make up the CPI.