:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2165717307-a843d8a1e1c94e9d98075343fa914292.jpg)
What To Expect From Friday's Report On Inflation
•February 11, 2026
0
Companies Mentioned
Why It Matters
A slowdown in inflation reduces pressure on the Fed to maintain higher interest rates, potentially unlocking consumer spending and supporting economic growth. It also signals that tariff‑induced price spikes are receding, reshaping the inflation outlook for businesses and investors.
Key Takeaways
- •CPI expected 2.5% YoY, down from 2.7% December
- •Core inflation forecast 2.5%, lowest since 2021
- •Tariff-driven price pressure easing, housing costs stabilizing
- •Fed may pause rate hikes if inflation cools further
- •Consumer spending could rise as household budgets improve
Pulse Analysis
The latest inflation forecast points to a modest 2.5% year‑over‑year rise in the Consumer Price Index for January, marking the first dip below the 2.7% pace recorded in December. This slowdown reflects a broader deceleration that began in late 2024, as tariff‑induced cost increases lose momentum and key categories such as housing, gasoline and rent show limited growth. Analysts note that the core CPI—excluding volatile food and energy—also targets 2.5%, a level not seen since 2021, suggesting that underlying price pressures are finally easing.
For the Federal Reserve, these numbers could shift the policy calculus. A sustained decline in both headline and core inflation reduces the urgency to keep the federal funds rate at restrictive levels, opening the door for a more cautious approach to rate cuts later in the year. Market participants have already priced in a "wait‑and‑see" stance through July, but an actual CPI read that aligns with expectations may accelerate expectations of a policy pivot. The Fed’s dual mandate—price stability and maximum employment—means that a cooler inflation environment could allow policymakers to focus more on supporting the labor market without fearing a resurgence of price spikes.
Beyond monetary policy, the inflation outlook carries real implications for household budgets and consumer confidence. Lower price growth frees up disposable income, potentially boosting retail sales and durable‑goods purchases. Coupled with fiscal stimulus from recent tax cuts and previous rate reductions, the economy could experience a modest uptick in demand. However, economists caution that the easing may be temporary, as fiscal and monetary easing could re‑ignite demand pressures in 2026. Stakeholders should monitor subsequent CPI releases and Fed communications to gauge whether this January dip signals a durable trend or a short‑term blip.
What To Expect From Friday's Report On Inflation
Key Takeaways
-
Forecasters expect inflation to have decelerated in January, with core prices rising 2.5% over the year, the lowest since 2021.
-
Tariffs are still pushing up prices, but some costs, including for housing, aren't rising as quickly as they did a few years ago.
-
Tame inflation could take pressure off the Federal Reserve to keep its key interest rate higher for longer to subdue price increases.
Investopedia Answers
Price increases were likely relatively tame in January, with one key inflation measure expected to drop to its lowest level in nearly five years.
A report Friday from the Bureau of Labor Statistics is expected to show the Consumer Price Index rose 2.5% over the year in January, down from a 2.7% annual increase in December, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.¹ That would be the lowest since May.²
Core inflation, which excludes volatile food and energy prices, is forecast to fall to a 2.5% annual increase from 2.6% in December, hitting a fresh low since 2021.
What This Means For The Economy
If inflation resumes its downward trajectory, it could help household budgets and encourage more consumer spending, boosting the economy.
If the report matches expectations, it could bolster the argument of some forecasters who believe the effect of tariffs on inflation will fade steadily in the coming months as companies finish their tariff‑related price hikes.
Inflation rates fell in 2024 and early 2025, and went into reverse mid‑year when President Donald Trump imposed sweeping tariffs on nearly every U.S. trading partner. Import taxes have pushed up prices on many products, keeping inflation above the Federal Reserve's 2% annual target. However, some key prices, including for gasoline and rent, have stayed flat or fallen, keeping overall inflation from spiking.
Policymakers at the Fed will keep a close eye on incoming inflation data, especially core inflation, which economists consider a better barometer of price trends. Policymakers have been debating whether to resume cutting interest rates to bolster the job market like they did late last year, or keep them higher for longer to wrestle inflation down to the 2% target.
Financial markets expect the Fed to stay in “wait‑and‑see” mode at least until July, according to the CME Group's FedWatch tool, which forecasts rate cuts based on fed funds futures trading data. That expectation could change significantly depending on what the CPI actually shows.
Some forecasters believe a drop in January could be the last good news on inflation for some time. After that, the tax cuts from the “One Big, Beautiful Bill Act” go into effect, putting more money into the economy alongside the extra stimulus from the Fed's three rate cuts last year, which lowered borrowing costs.
“While both headline and core CPI should edge lower on a year‑over‑year basis in January, we do not expect much further cooling over the course of 2026 as easier fiscal and monetary policy lend some support to demand,” economists at Wells Fargo Securities wrote in a commentary.
0
Comments
Want to join the conversation?
Loading comments...