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

Investors got some good news this week on the state of the labor market and more may be on the way Friday on inflation.

The consumer price index, a broad measure of goods and services costs across the U.S. economy, is expected to show a 2.5% gain from a year ago, according to the Dow Jones consensus forecast for the January release.

If that ends up being accurate, it would bring the widely cited inflation gauge back to its May 2025 level — a month after President Donald Trump enacted his “liberation day” tariffs that many economists thought would send prices spiraling higher.

The headline, or all-items, CPI was at 2.7% in December and has been on a downward trajectory since peaking just above 3% in September 2025. Excluding food and energy, core CPI stood at 2.6% in December. Both gauges are expected to show 0.3% monthly increases in January.

It’s also worth noting that CPI has come in below the Wall Street consensus for the past three months. So, a light reading for January could give Federal Reserve policymakers more confidence that they can lower their benchmark borrowing rate without risking another inflation burst.

Getting inflation back to 2.5% would be consistent with prices prior to the Covid pandemic and around the average of 2017-19, according to Tom Lee, head of research at Fundstrat Global Advisors.

“This is ‘normal’ inflation conditions even with tariff impacts still lingering in these results,” Lee said in a note. With the fed funds rate, currently targeted between 3.5%-3.75%, well above where it was pre-Covid, “the Fed has a lot of room to cut,” he added.

As usual, Wall Street economists will pore through the release for details.

Goldman Sachs expects contribution of 0.07 percentage point to core inflation from tariffs, with upward pressure possible on clothing, recreation, household furnishings, education and personal care. However, Goldman sees headline CPI coming in a bit light at 2.4%, which could add to hopes that inflation is moderating.

Markets recoiled a bit after Wednesday’s strong jobs report, which showed nonfarm payroll gains of 130,000 for January and the unemployment rate dropping to 4.3%, amid speculation that a solid labor market would discourage the Fed from cutting.

However, a consensus or below reading on inflation could alleviate those concerns.

“A dovish Fed is supportive of stocks, and this is why in our base case of a ‘3 phase market,’ we see stocks exiting the year strongly,” Lee said.

The Bureau of Labor Statistics will release the report Friday at 8 a.m. ET.