CPI Inflation Data May Lower Fed's Guard; S&P 500 Steadies

Consumer price index data for January came in a bit cooler than expected, with core inflation falling to its lowest level since early 2021. Trump tariffs showed little impact on goods prices and rent inflation continued to fade. Markets could use a more dovish Fed. After three straight down sessions, the S&P 500 held near the flat line on Friday morning.

January’s surprisingly strong jobs report, helped by warm weather at the start of the year, has diminished chances of a near-term easing. However, the Fed has cast doubt on the accuracy of the jobs data and other data from retail sales to employee compensation and existing home sales have surprised on the downside.

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						From Leadership Changes To Rate Cuts, Here's What To Expect From The Fed In 2026

9:35 a.m. ET

Health Insurance Inflation

The CPI shows health insurance prices falling 1% in January. That number doesn’t reflect reality but is based on a measure of past retained earnings by insurers. The CPI measure is based on the idea that if customers are using more health care services and insurers are making less money, then the out-of-pocket price is falling.

The producer price index measure of health care insurance prices may be a wild card. That’s especially because of an average 26% increase in Affordable Care Act Marketplace premiums that took effect in January.

9:12 a.m. ET

More CPI Details

So far, Trump tariffs have had little effect on auto prices. New vehicle prices inched up 0.1% on the month and 0.4% from a year ago. Used cars and truck prices fell 1.8% in January and were down 2% from a year ago.

Hotel and motel rates fell 0.5% on the month and 3.2% from a year ago. Airline fares jumped 6.5% in January, while rising 2.2% from a year ago.

A price increase by Spotify (SPOT) contributed to a 4.5% jump in prices for recorded music and music subscriptions, which was the largest since March 2017.

9:01 a.m. ET

CPI Vs. Key Fed Inflation Rate

The Fed’s primary inflation rate is the core PCE price index, which gets about 70% of its weight from the CPI. The bulk of the rest comes from the producer price index, which won’t be released until Feb. 27.

The biggest difference between the core CPI and core PCE is that rent is by far the biggest influence on the former, while health care services prices are the biggest item in the Fed’s preferred inflation indicator.

CPI data showed medical services prices rise 0.3% on the month, but that provides little clue as to what PCE data will show. The latter includes health care paid for by third parties, such as employer sponsored insurance or government payors.

One positive indicator for the January core PCE price index is that food prices consumed away from home rose just 0.1%. That category is excluded from the core CPI but is part of the core PCE.

8:53 a.m. ET

Fed Rate-Cut Odds Get A Bump

Odds of a rate cut at the March 18 Fed meeting edged up to 10%, according to CME Group’s FedWatch tool. Odds of a cut by the April 29 meeting now stand at 30%, up slightly.

Markets now see 69% odds of a cut by the June 17 meeting.

8:47 a.m. ET

Futures Firm Up

S&P 500 futures were little changed after trading down about 0.2% just before the CPI release. The 10-year Treasury yield dipped to 4.09% vs. 4.1% on Thursday.

8:45 a.m. ET

Rents Fade Further

Rent of primary resident and owners’ equivalent rent each rose 0.2% on the month. Primary rents rose 2.8% from a year ago, the smallest gain since October 2021. Owners’ equivalent rent rose 3.3%, which was the least since October 2021.

8:41 a.m. ET

Goods Prices Flat Despite Tariffs

Core goods prices were unchanged in January and rose just 1.1% from a year ago. Core services prices rose 0.4%, lifted by a 1.4% gain in transportation services prices.

CPI Inflation Data

The overall CPI rose 0.2% in January, below 0.3% forecasts. The 12-month CPI inflation rate eased to 2.4% from 2.7%, undershooting forecasts.

The core CPI, which excludes food and energy prices, rose 0.3%, matching estimates. The 12-month core inflation rate fell to 2.5% from 2.6% in December.

CPI Inflation Forecasts

Economists expect both the headline and core CPI to rise 0.3% on the month, according to Econoday. The 12-month headline inflation rate is seen easing to 2.5% from 2.7% in December.

The 12-month core CPI inflation rate, which strips out food and energy prices, is seen dipping to 2.5% from 2.7%.

Fed Rate-Cut Odds

Ahead of the CPI data, markets are pricing in just 8% odds of a rate cut at the next Fed meeting on March 18. Odds of a rate cut by the subsequent meeting on April 29 stand at 27%.

Markets see 63% odds of a rate cut by the June 17 meeting, by which time Kevin Warsh, President Trump’s newly nominated chair, should be running the show.

S&P 500

S&P 500 futures pointed 0.2% lower early Friday. The S&P 500 fell 1.6% on Thursday, falling below the key 50-day moving average technical level and bringing its three-session loss to 1.9%.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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