January inflation data beats expectations, sparking sharp market rally as investors see signs the Fed may cut interest rates sooner than anticipated.

Inflation came in below economists' forecasts and slowed from December's 2.7% annual rate.

A decline in the rate of price increases is good news for Americans who have grappled for years with rising costs of living.

“The index for shelter rose 0.2% in January and was the largest factor in the all items monthly increase,” the BLS said in its release. “The food index increased 0.2% as did the food at home index, while the food away from home index rose 0.1%. These increases were partially offset by the index for energy, which fell 1.5% in January.”

Key Takeaways Forecasters expect inflation to have decelerated in January, with core prices rising 2.5% over the year, the lowest since 2021.Tariffs are still pushing up prices, but some costs, including for housing,

According to figures released on Monday by the national statistics agency, Mexico’s inflation rate rose in January, supporting the central bank’s decision last week to keep its benchmark interest rate unchanged.

Inflation advanced during the first month of the year, with cigarettes, limes, housing and tacos helping to drive prices higher.

January CPI reflects rising transport and tariff costs; falling rents balance core inflation to keep bond markets stabilized. Read why bond market needs to be stable.