Inflation eased in January to its slowest pace in nearly a year, offering a fresh sign that price pressures are retreating after a temporary stall late last year.

Prices rose 2.4 percent over the last 12 months, according to a report Friday from the Bureau of Labor Statistics, coming in below economists’ expectations of 2.5 percent. On a monthly basis, prices climbed just 0.2 percent. The cooling was driven largely by a sharp decline in energy costs, which fell 1.5 percent, and a 1.8 percent drop in prices for used cars and trucks.

The latest readout provides welcome breathing room for the Federal Reserve. Although the Fed has since lowered its benchmark rate from a 23-year high of 5.50 percent to a current range of 3.50 to 3.75 percent, today’s report suggests the central bank can safely continue to lower rates later this year.

While the headline number remains technically above the Fed’s goal, the consistent downward trend strengthens the case for a rate cut.

“This is actually the fourth month in a row that CPI has come in under the Dow Jones consensus,” said Abhi Gupta, associate director of macroeconomic analysis at the Yale Budget Lab. “This does suggest we’re moving towards the target faster than people have expected.”

Gupta noted that because the Fed’s preferred measure—the Personal Consumption Expenditures (PCE) price index—typically runs lower than the CPI, a 2.4 percent reading is roughly equivalent to the central bank’s sweet spot. “We’re still not quite on target,” he added, but noted the data indicates the Fed is closer to its goal than many realize.

Still, the “core” index, which strips out volatile food and energy costs, painted a slightly more complex picture. Core inflation rose 0.3 percent in January and 2.5 percent from a year ago. Much of this persistence is due to the “shelter” category—which includes rent and mortgages—rising 0.2 percent in January. Because housing costs account for about one-third of the total CPI, their slow descent remains the primary obstacle to reaching the 2 percent target.

The latest inflation figures complement a labor market that has defied expectations of a slowdown. Earlier this month, the Labor Department reported that employers added 130,000 jobs in January, shattering forecasts of 70,000, while the unemployment rate slipped to 4.3 percent. This “soft landing” scenario – where price growth cools without stifling the workforce – suggests the era of elevated inflation may finally be drawing to a close, though the Fed must now balance the risk of cutting rates too soon against an economy that still has momentum.

The report was also muddied by recent political disruptions. A partial government shutdown in late 2025 delayed data collection for key sectors like shelter and used cars.

As the Federal Open Market Committee (FOMC) prepares for its March meeting, the debate has narrowed to whether the central bank will cut rates immediately or hold until later in the spring. Additionally, “the much feared tariff-driven spike” has not materialized, noted Nigel Green, CEO of deVere Group. Prices for new vehicles rose just 0.1 percent in January, while apparel costs ticked up a modest 0.3 percent. The absence of new inflationary pressure clears the path for the Fed to act.

“Price growth is no longer running at levels that justify emergency-era restraint,” said Green.