U.S. consumer prices are widely expected to have climbed in January as businesses implemented customary start-of-year price increases and as tariff-related cost pass-through continued to lift goods prices, economists said. The monthly rise in the Consumer Price Index would come alongside a stabilizing labor market, a combination that could give the Federal Reserve leeway to keep interest rates unchanged for some time.
Following data earlier this week showing an acceleration in payroll gains and a drop in the unemployment rate to 4.3% from 4.4% in December, the Labor Department’s consumer inflation report for January will provide another data point on how prices and the labor market are evolving.
"Firms tend to raise prices at the beginning of the year, after the holiday season," said Diego Anzoategui, an economist at Morgan Stanley. "Seasonal factors do not fully eliminate this pattern, so seasonally adjusted inflation prints tend to come in higher than during the rest of the year." Economists pointed to that recurring January pattern as a reason for expecting a stronger monthly CPI print.
A Reuters survey of economists predicted the CPI likely increased by 0.3% in January, matching December’s gain. Individual forecasts ranged from a 0.1% increase up to a 0.4% rise. On an annual basis, the CPI is forecast to have risen 2.5% in the 12 months through January, down from 2.7% in December - a slowdown mostly reflecting higher readings from the prior year rolling out of the year-on-year calculation.
The Bureau of Labor Statistics will publish recalculated seasonal adjustment factors with the January report to reflect 2025 price movements. Those new factors could lead to revisions of seasonally adjusted series going back five years. Economists, however, did not expect the updated seasonal factors - the statistical model the BLS uses to remove recurring seasonal variation - to eliminate the so-called January effect, a pattern in which CPI figures have tended to overshoot expectations each January.
The release was slightly delayed by last week’s three-day federal government shutdown. Economists noted that a longer shutdown last year prevented the collection of price data for October, which introduced volatility into the CPI series; they expected that some of that volatility would fade in the January release.
Food costs were expected to remain elevated after a sharp 0.7% jump in December that some economists linked to disruptions in price collection during the previous year’s extended shutdown. At the same time, recent moves by the Trump administration to roll back and cut tariffs on some imported food - including vegetables and bananas - were seen as likely to moderate food price pressures going forward.
On labor supply and its effect on food prices, economists offered differing takes. "While many migrant workers have likely left over fears of deportation, and the flow of new workers has slowed sharply, immigration policies have not had as much impact on farm labor as many had feared," said Dean Baker, senior fellow at the Center for Economic and Policy Research. That, some economists argued, reduced the risk of severe agricultural labor shortages that would have pushed food prices much higher.
Energy costs presented a mixed picture. Gasoline prices were likely lower in January, but electricity costs were expected to have increased due to strong demand from data centers powering artificial intelligence applications, putting upward pressure on power bills.
Excluding the volatile food and energy components, core CPI was forecast to have risen 0.3% month-on-month after a 0.2% gain in December. Economists expected the turn-of-the-year markup in prices to appear in categories such as prescription drugs and motor vehicle insurance, among others. They also anticipated continued tariff pass-through into goods prices in areas like recreation, apparel and household furnishings.
"With demand holding firm, we see no compelling reason for companies to stop passing tariff costs through to consumers with only 40% of the cost increase clawed back," said Andy Schneider, a senior U.S. economist at BNP Paribas.
Services inflation was expected to show a mixed pattern in January. Some forecasters anticipated a moderation in price growth for hotel and motel rooms and airline fares after sharp increases in December, while rent and healthcare costs were forecast to maintain solid, steady gains.
On the broader policy front, the Federal Reserve watches the Personal Consumption Expenditures Price Index for its 2% inflation target; the CPI and PCE measures are both running above that goal. The Federal Reserve last month left its benchmark overnight interest rate in the 3.50% to 3.75% range, a posture that could remain if inflation and labor indicators hold near expectations.
Some economists cautioned that additional tariff-related costs and the sustained weakening of the trade-weighted U.S. dollar over the past year could feed through to consumer prices this year. "Keeping in mind indications that additional tariff-related costs will pass through onto consumers this year, as well as the potential pass-through of the sustained weakening of the trade-weighted U.S. dollar over the past year, we continue to expect that inflation will re-accelerate for a time this year," economists at JPMorgan wrote in a note.
As the January CPI figures are released, markets and policymakers will weigh the interplay of routine seasonal price-setting, tariff pass-through, sector-specific cost pressures such as electricity demand from data centers, and recent labor market strength in judging the near-term path of U.S. inflation.