Investors and policymakers were looking for a mix of results in January. Inflation cooled, but the job market continued to grow.
Core inflation, which excludes food and fuel, rose by 0.3% in January. It was 2.5% higher than a year ago.
The “soft landing” storyline for 2026 is still in place, as payrolls increased by 130,000, and unemployment remained at 4.3%.
Inflation numbers: What they tell us
This headline CPI Report offers clear relief at the surface.
According to the Bureau of Labor Statistics, prices of all urban consumers (CPI U) increased by 0.2% in January. The 12-month rate also decreased, from 2.7%, in December.
CNBC cited a Dow Jones Survey that predicted a monthly increase of 0.3% and an annual growth rate of 2.5%.
The report shows some areas “sticky”, which are important to the Federal Reserve.
The Core CPI increased 0.3% over the last year and 2.5% in January. This shows that price pressures are still present.
According to BLS, the BLS reported that the BLS index of housing prices increased by 0.2% during January.
Shelter prices have increased by 3.0% over the last year. This helps to explain why headline inflation is still high even though core inflation remains stable.
The top line number was lowered by energy.
According to the BLS, the energy index dropped 1.5% for the month of January. Gasoline prices also fell 3.2% (before the seasonal adjustment).
Food at home and away from home both increased by 0.2%, while the index for food rose by 0.1%.
Several smaller categories have also seen a sharp increase. BLS reported that airline fares increased 6.5%, used vehicles and trucks dropped 1.8% and motor vehicle insurers decreased 0.4% in January.
The picture shows that disinflation is continuing but it is not a smooth process. This nuance keeps the rate expectation sensitive to every new CPI reading.
The US employment data and the larger picture
The job market is stable and not overheated.
BLS reported that total nonfarm payroll jobs rose by 130,000 during January and the unemployment rate “changed very little”, at 4.3%.
The gains in employment were concentrated at health care (82,000), construction (33,000), and social assistance (42,000). Federal government employment dropped by 34,000 and financial activity declined by 22,000
The pace of wage growth is still a good one for consumers. However, it’s not too fast to cause inflation.
The average hourly wage for employees in private, non-farm payrolls increased by 0.4% to $37.17 and was up 3.7% within the last 12 months.
Another sign of the labor market’s stability is that in January the average weekly work hours increased to 34.3.
The investors also needed to take into account revisions, which can temper the readings of a single month.
BLS revised the November and December payroll increases down from 56,000 to 41,000, respectively, and to 48,800 from 50,000. This means that both months were 17,000 less than originally reported.
The benchmarking process, on a broader scale, revised down the level of non-farm employment in March 2025 by 898,000, according to a seasonal adjustment. It also reduced the number of jobs created from 2025, which went up from 584,000, to only 181,000.
This kind of adjustment does not change the fact hiring will continue in 2026. However, it reinforces the notion that the labor markets has cooled down from the earlier pace after the pandemic.
What is the truth behind soft landings?
The “soft landing scenario” occurs when inflation falls without the economy going into recession. It is a slower rate of price increase without an explosion in unemployment.
The data for January fit this storyline much better than those of recent months. Headline inflation slowed, while job growth continued moderately.
The Fed should not be tempted to celebrate its success.
As businesses increased prices to start the new year, the January CPI was lower than anticipated. However, the inflation rate underlying the CPI remained stable.
The immediate market reaction was in line with this reading, as Treasury yields fell after the CPI figure came out slightly lower.
It is easy to draw up a risk scenario. The Fed might be less inclined to reduce rates if core inflation is elevated by shelters and services, even though headline inflation may look comfortable.
If hiring slows down too soon, particularly after benchmark revisions have reminded investors of how noisy jobs data can sometimes be, a soft landing may start to resemble a slower pace.
The soft landing camp has new evidence for the future, but it will be more important to look at the CPI and the labor report than a single good month.
The post US Soft Landing in 2026: Cooling Inflation and Stable Hiring Reveal New Hopes may be updated as new information becomes available
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