Big-Picture Snapshot

Key Contributors This Month

• Shelter: 0.18 percentage points
• Energy: -0.11 percentage points
• Used vehicles: -0.05 percentage points
• Food at home: 0.04 percentage points

Policy Pulse

January’s 2.40% YoY inflation reading remains above the Federal Reserve’s 2% target. The gap has narrowed from December’s 0.70 percentage point overshoot to 0.40 points, reflecting progress but not full alignment with policy goals.

Market Lens

Bond yields dipped sharply on the release. The drop in headline inflation revived hopes for a steadier disinflation path, prompting a rally in Treasuries and a modest uptick in equities. Market participants interpreted the data as a sign that price pressures are abating, though caution persists given the proximity to the Fed’s target.

Foundational Indicators

Historical Context

• January 2026: 2.40% YoY
• December 2025: 2.70% YoY
• October 2025: 3.00% YoY
• September 2025: 2.90% YoY
• April 2025: 2.40% YoY (previous low)

Methodology & Source

The US Bureau of Labor Statistics calculates the Consumer Price Index (CPI) using a weighted basket of goods and services. The YoY rate compares January 2026’s index to January 2025. Data verified via Sigmanomics and official BLS releases.^[1]

Scenario Matrix

• Bullish: Inflation falls below 2.20% in coming months (25–35% probability)
• Base: Inflation stabilizes near 2.40–2.60% (50–60% probability)
• Bearish: Inflation rebounds above 2.70% (10–20% probability)

Chart Dynamics

Forward Outlook

Upside & Downside Risks

• Upside: Further declines in energy and used car prices could push inflation closer to target.
• Downside: Persistent shelter costs and potential food price shocks remain risks to renewed disinflation.

Market Lens

Equities extended gains post-release. Investors welcomed the softer inflation print, viewing it as a sign of easing price pressures. However, the market remains alert to any reversal in shelter or services inflation, which could stall progress.

Scenario Probabilities

• Disinflation continues: 50–60% probability
• Inflation stabilizes above target: 25–35% probability
• Reacceleration above recent highs: 10–20% probability

Closing Thoughts

Key Takeaways

• US inflation fell to 2.40% YoY in January 2026, its lowest since April 2025.
• Energy and used vehicles drove the disinflation, while shelter remains sticky.
• The reading narrows the gap to the Fed’s 2% target but does not close it.
• Markets responded positively, but vigilance around core components persists.

Policy Pulse

The Federal Reserve’s 2% inflation target remains a key benchmark. January’s print, while encouraging, keeps the policy debate open as core inflation components have yet to fully align with headline progress.