A customer shops at Walmart on January 22, 2026 in Little Rock, Arkansas.
Will Newton | Getty Images
Investors got some good news this week regarding the state of the labor market, but there could be more news on inflation on Friday.
The consumer price index, a broad measure of the cost of goods and services across the U.S. economy, is expected to rise 2.5% from a year ago, according to Dow Jones consensus forecasts released in January.
If that is ultimately accurate, the widely cited measure of inflation will return to May 2025 levels. This comes a month after President Donald Trump enacted “Emancipation Day” tariffs that many economists thought would cause prices to skyrocket.
The overall CPI (all items) was 2.7% in December, and has been on a downward trend since reaching a peak of just over 3% in September 2025. Core CPI, excluding food and energy, was 2.6% in December. Both indicators are expected to rise 0.3% month-on-month in January.
It’s also worth noting that CPI has been below Wall Street consensus for the past three months. So a light reading of the January outlook could give Fed policymakers more confidence that they can lower their benchmark borrowing rate without risking another burst of inflation.
Returning inflation to 2.5% would bring prices in line with pre-pandemic prices and around the 2017-19 average, said Tom Lee, head of research at Fundstrat Global Advisors.
“This is a ‘normal’ inflation situation, even though the impact of tariffs is still present in this result,” Lee said in a note. The Fed’s current target for the federal funds rate is between 3.5% and 3.75%, well above pre-coronavirus levels, and “the Fed has a lot of room to cut rates,” he said.
As usual, Wall Street economists will scrutinize the release for details.
Goldman Sachs expects the tariffs will contribute 0.07 percentage points to core inflation, potentially putting upward pressure on sectors such as clothing, recreation, household goods, education and personal care. However, Goldman believes that the headline CPI has eased slightly to 2.4%, potentially increasing expectations that inflation is easing.
Markets pulled back slightly after Wednesday’s strong jobs report showing nonfarm payrolls rose by 130,000 in January and the unemployment rate fell to 4.3% amid speculation that a strong labor market would deter the Fed from cutting interest rates.
However, these concerns could be alleviated if inflation rates are at or below consensus.
“A dovish Fed favors equities, which is why in our base case of a ‘three-stage market,’ we expect equities to come out of this year strong,” Lee said.
The Bureau of Labor Statistics will release the report at 8 a.m. ET on Friday.
