January delivered the kind of mix investors and policymakers have been looking for: inflation cooled even as the labor market kept adding jobs.
The US consumer price index rose 0.2% in January and was up 2.4% from a year earlier, while core inflation (which strips out food and energy) rose 0.3% on the month and 2.5% on the year.
At the same time, payrolls grew by 130,000 and unemployment held near 4.3%, keeping the “soft landing” narrative in play for 2026.
What inflation numbers tell us
The headline CPI report offered clear relief on the surface.
The Bureau of Labor Statistics said prices for all urban consumers (CPI-U) rose 0.2% in January, and the 12-month rate eased to 2.4%, down from 2.7% in December.
That was a touch softer than economists had expected, with a Dow Jones survey cited by CNBC looking for a 0.3% monthly rise and a 2.5% annual rate.
Underneath, the report still showed some “sticky” areas that matter for the Federal Reserve.
Core CPI rose 0.3% in January and was up 2.5% over the past year, a reminder that underlying price pressures have not disappeared.
Shelter prices rose 0.2% in January and were the largest contributor to the monthly increase in the overall index, according to the BLS.
Over the past year, shelter was up 3.0%, which helps explain why core inflation can remain firm even when headline inflation cools.
Energy helped pull the top-line number down.
The BLS said the energy index fell 1.5% in January, with gasoline down 3.2% on the month (before seasonal adjustment, gasoline prices fell 2.5%).
The food index rose 0.2% in January, with food at home also up 0.2% and food away from home up 0.1%.
A few smaller categories also moved sharply. Airline fares rose 6.5% in January, while used cars and trucks fell 1.8%, and motor vehicle insurance slipped 0.4%, the BLS said.
Taken together, the picture is consistent with disinflation continuing, but not in a perfectly smooth line, and that nuance is what keeps rate expectations sensitive to each new CPI print.
How US jobs data fits the bigger picture
The labor market, meanwhile, looks steady rather than overheated.
The BLS said total nonfarm payroll employment rose by 130,000 in January, and the unemployment rate “changed little” at 4.3%.
Job gains were concentrated in health care (82,000), social assistance (42,000), and construction (33,000), while federal government employment fell by 34,000, and financial activities declined by 22,000.
Wages are still rising at a pace that supports consumers, but not so fast that it automatically implies runaway inflation.
Average hourly earnings for all employees on private nonfarm payrolls rose 0.4% in January to $37.17, and were up 3.7% over the past 12 months.
The average workweek edged up to 34.3 hours in January, another sign that labor demand is holding together.
Investors also had to digest revisions that temper any single-month read.
The BLS revised November payroll growth down to 41,000 from 56,000, and December to 48,000 from 50,000, making the two months combined 17,000 lower than previously reported.
More broadly, the annual benchmark process revised the March 2025 level of total nonfarm employment down by 898,000 on a seasonally adjusted basis, and it cut 2025 job gains from 584,000 to 181,000.
That kind of adjustment doesn’t change the fact that hiring is continuing in 2026, but it does reinforce the idea that the labor market has cooled from its earlier post-pandemic pace.
The soft landing narrative: How real is it?
A “soft landing” is the scenario where inflation comes down without the economy tipping into recession, slower price growth without a surge in unemployment.
January’s data fit that storyline better than many recent months: headline inflation eased, and job growth continued at a moderate clip.
For the Fed, the combination argues for patience, not victory laps.
The January CPI rose less than expected, while the underlying inflation remained firm as businesses raised prices at the start of the year.
In markets, the immediate reaction was consistent with that read, with Treasury yields slipping after the slightly lighter CPI print.
The risk case is still easy to sketch. If shelter and other service-heavy categories keep core inflation elevated, the Fed may feel less urgency to cut rates, even if headline inflation looks comfortable.
And if hiring cools too quickly, especially after the benchmark revisions reminded investors how noisy the jobs data can be, the soft landing could start to look more like a slowdown.
For now, January’s cooler inflation and steady hiring give the soft-landing camp fresh evidence heading deeper into 2026, but the next few CPI prints and labor reports will matter more than any single “good” month.
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