The January CPI inflation report is due out Friday morning. Here's what it's expected to show

• Both headline and core CPI are expected to show 0.3% monthly increases in January, with core CPI anticipated at 2.6%, continuing a downward trend from the September 2025 peak above 3%
• Goldman Sachs estimates tariffs will contribute 0.07 percentage points to core inflation, with pressure on clothing, recreation, household furnishings, education and personal care sectors
• With the federal funds rate at 3.5%-3.75%, well above pre-Covid levels, analysts believe the Fed has significant room to cut rates if inflation remains moderate

January CPI Inflation Report Summary

Key Expectations

The January Consumer Price Index (CPI) report, releasing Friday at 8 a.m. ET, is expected to show a 2.5% year-over-year increase, according to Dow Jones consensus. Core CPI (excluding food and energy) stood at 2.6% in December, with both headline and core inflation projected to rise 0.3% monthly in January.

Market Context

If the 2.5% forecast proves accurate, it would match May 2025 levels—notably one month after President Trump's "liberation day" tariffs, which many economists feared would trigger significant price increases. CPI peaked above 3% in September 2025 and has declined steadily since. The gauge has come in below consensus for three consecutive months.

Federal Reserve Implications

A light inflation reading could encourage the Federal Reserve to lower its benchmark rate, currently targeted at 3.5%-3.75%. Tom Lee of Fundstrat Global Advisors notes that 2.5% inflation aligns with pre-COVID "normal" conditions (2017-19 average), suggesting "the Fed has a lot of room to cut."

Sector Analysis

Goldman Sachs anticipates tariffs contributing 0.07 percentage points to core inflation, with potential upward pressure on clothing, recreation, household furnishings, education, and personal care. However, Goldman projects headline CPI at 2.4%, slightly below consensus.

Market Reaction

Recent labor market data showed 130,000 January payroll gains and unemployment at 4.3%, initially dampening rate-cut expectations. A dovish inflation reading could offset these concerns and support equity markets. Analysts view accommodative Fed policy as bullish for stocks through year-end.