Cooling inflation and steady hiring ignite fresh hopes of a US soft landing in 2026

• Headline CPI rose 0.2% in January (below the 0.3% forecast), with energy prices falling 1.5% and gasoline down 3.2%, while core CPI increased 0.3% monthly with shelter up 3.0% year-over-year
• Nonfarm payrolls grew by 130,000 jobs with gains concentrated in healthcare (82,000) and social assistance (42,000), while average hourly earnings rose 3.7% annually to $37.17
• Annual benchmark revisions cut 2025 job gains from 584,000 to just 181,000, suggesting the labor market has cooled significantly from its post-pandemic pace and making future data releases more critical

Summary: US Soft Landing Hopes Strengthen on Cooling Inflation and Steady Employment

Key Economic Data:

January 2026 delivered encouraging signs for a US economic soft landing. The Consumer Price Index (CPI) rose 0.2% month-over-month, below the expected 0.3%, with the annual rate declining to 2.4% from December's 2.7%. Core CPI (excluding food and energy) increased 0.3% monthly and 2.5% annually, indicating persistent underlying price pressures.

The labor market showed resilience with 130,000 nonfarm payroll jobs added in January, keeping unemployment steady at 4.3%. Healthcare (+82,000), social assistance (+42,000), and construction (+33,000) led job gains, while federal government (-34,000) and financial activities (-22,000) declined. Average hourly earnings rose 0.4% to $37.17, up 3.7% year-over-year.

Sector Highlights:

Shelter costs remained sticky, rising 0.2% monthly and 3.0% annually, representing the largest contributor to overall inflation. Energy prices fell 1.5%, with gasoline down 3.2%. Notable volatility appeared in airline fares (+6.5%) and used vehicles (-1.8%).

Market Implications:

The data supports the soft landing narrative—disinflation without recession—giving the Federal Reserve room for patience on rate policy. Treasury yields declined following the report. However, significant revisions lowered total 2025 job gains from 584,000 to 181,000, suggesting prior data overstated labor market strength.

Risks remain if sticky service inflation persists or hiring cools too quickly. The combination positions upcoming CPI and employment reports as critical for confirming whether the soft landing scenario will hold through 2026.