Inflation hits 5-year low, wages grow

Inflation has registered the smallest annual increase in nearly five years as consumer prices rose 2.4% in the 12 months through January, below consensus forecasts of 2.5%.

Combined with wage data released this week, the numbers suggest workers are beginning to make up some ground after surging Biden-era inflation took a bite out of paychecks.

The Consumer Price Index (CPI), the broadest measure of inflation, increased 0.2% last month, according to data provided by the Bureau of Labor Statistics (BLS).

The dip in inflation was powered by a 3.2% decrease in gasoline prices in January.

Over the last year, all items minus food and energy climbed just 2.5%.

Food prices rose modestly over the month, said the BLS.

The food at home index rose 2.1% over the 12 months ending in January.

Shelter costs and several service categories contributed to the overall increase, while indexes for used cars and trucks and motor vehicle insurance declined in January.

The gasoline index plunged 7.5% over the 12-month span. In contrast, the index for electricity increased 6.3% and natural gas rose 9.8%.

Previously, the Lion reported national electric prices have been skewed by large increases in California, New York and New England, while most states recorded rate increases at or below inflation.

The January inflation data came on a rescheduled release after the BLS pushed back CPI reporting due to a brief federal government shutdown that also delayed the jobs report.

The jobs data released earlier in the week showed that over the past 12 months average hourly earnings have increased by 3.7%, which means wages are rising faster than inflation.

Total nonfarm jobs increased by 130,000 in January, breaking a logjam on job creation that’s been the only blemish on otherwise upbeat numbers. 

CNBC reports consensus estimates were for 55,000 new jobs in January.

The unemployment rate edged down to 4.3% from 4.4% in December, said BLS.

Gains were concentrated in healthcare, social assistance and construction, while federal government and financial activities slashed jobs during the month.

In 2025, the Trump administration shed about 352,000 federal jobs overall, reducing the federal workforce by about 15% of the 2.32 million employees, not including USPS and the military.

Still, unemployment and labor force participation rates remain largely unaffected by the layoffs or by mass deportations.

The civilian labor force has increased by about 1 million while unemployment has ticked up from 4% to 4.3% over the last year.

Economists have monitored inflation closely as the Federal Reserve decides whether it should lower rates.

The relationship between wage increases, full employment and inflation will again take center stage as the central bankers ponder possible cuts: Wage trends remain a key factor for both inflation and consumer spending. Slower inflation and easing core prices suggest price pressures have cooled compared with the elevated rates seen under Biden, which could justify a rate cut.

But with January’s job growth exceeding expectations, it could give the Federal Reserve an excuse to keep interest rates steady.

The president and members at the Federal Reserve Bank have been arguing about interest rate policy, expensive renovations at the bank headquarters and alleged mortgage fraud by one of its governors.

Trump would like to see lower rates to ease consumer borrowing costs, accelerate economic growth, job growth and wages.

Previously, the Federal Reserve Open Market Committee, which decides the base federal funds rate, set an inflation target of 2%.