US Core CPI January 2026: Inflation Accelerates on Services Costs

The Bureau of Labor Statistics released the January 2026 Consumer Price Index data on February 13, 2026, revealing mixed signals in the ongoing battle against inflation. The core CPI, which excludes volatile food and energy prices, increased 0.3% month-over-month, matching economist expectations but representing the

[1]. Compared to January 2025, the core measure rose 2.5% year-over-year, maintaining consistency with the prior period and meeting forecasts [3].

The headline CPI figure of 2.4% year-over-year actually came in slightly below the expected 2.5%, providing some incremental relief on the inflation front. However, the monthly acceleration in core inflation—from 0.2% in December to 0.3% in January—signals that services sector inflation remains sticky and persistent [1][3].

The CPI data was released after the market close on February 12, 2026, with equity markets already experiencing significant weakness ahead of the release. The pre-CPI trading session showed pronounced sell pressure across major indices: the S&P 500 declined 1.79%, the NASDAQ Composite fell 2.36%, the Dow Jones Industrial Average dropped 1.71%, and the Russell 2000 small-cap index slid 2.58% [0]. This widespread decline suggests investors were positioning defensively ahead of the inflation data.

Post-CPI futures trading indicated the data was largely priced in or viewed as neutral, with U.S. equity futures finishing “largely flat” following the release [3]. This divergence between pre-CPI weakness and post-CPI stability suggests the market had already discounted potential inflation concerns.

The slightly lighter-than-expected headline CPI reading prompted yields to decline across the curve [6]:

Treasury Maturity	Yield	Change
2-Year	3.437%	-3 basis points
10-Year	4.087%	-2 basis points
30-Year	4.725%	-3 basis points

The yield curve shift downward across all maturities indicates bond markets interpreted the data as modestly supportive of the inflation outlook, though the moves remained contained.

Sector performance on February 12 revealed a classic defensive rotation pattern, with investors shifting away from growth-oriented sectors toward more defensive names ahead of the inflation data [0]:

Sector	Daily Performance
Consumer Defensive	+2.03% (best performer)
Utilities	+0.40%
Technology	-2.54%
Financial Services	-2.82%
Consumer Cyclical	-2.88% (worst performer)

The pronounced underperformance in technology (-2.54%) and consumer cyclical sectors (-2.88%), coupled with strength in defensive sectors, reflects investor concern that persistent services inflation could delay Federal Reserve rate cuts, thereby pressuring interest-rate-sensitive growth equities.

The 0.3% month-over-month increase in core CPI—the highest since August 2025—indicates that services sector inflation remains entrenched. Services costs, which include shelter, medical care, transportation, and recreation, tend to be more structurally sticky than goods inflation. This persistence complicates the Federal Reserve’s policy path, as services inflation typically responds more slowly to monetary policy tightening.

The slight beat on headline CPI (2.4% vs. 2.5% expected) while core CPI held steady at 2.5% year-over-year creates an asymmetric policy challenge. Headline inflation benefits from falling energy prices, but core inflation remains at the Federal Reserve’s target level without showing meaningful downward momentum. This divergence suggests the underlying inflation trend may be slower to moderate than headline figures indicate.

The January CPI data arrives amid evolving market expectations for Federal Reserve rate cuts. Following strong labor data in recent weeks, traders have reduced expectations for 2026 rate cuts [4]. Market participants are now pricing in a quarter-point rate cut in

and potentially another by year-end [2], a significant shift from earlier projections that anticipated more aggressive easing.

The combination of sticky services inflation, strong employment data, and potential fiscal stimulus from tax policies suggests the Federal Reserve may maintain its current policy stance (held at 3.50%-3.75% at the January 28, 2026 meeting) for the near term [5].

The 0.3% monthly core CPI increase—the highest in six months—demonstrates that inflation remains sticky, particularly within the services sector. If this trend continues, the Federal Reserve may be compelled to maintain restrictive policy longer than markets anticipate.

The technology sector’s pronounced weakness (-2.54% on February 12) suggests rotation away from growth stocks. Should rate cut expectations diminish further, this rotation could accelerate, creating broader market dislocation.

With the 10-year yield around 4.09% and Fed funds at 3.50-3.75%, the yield curve remains modestly positive. However, accelerating inflation could flatten or invert the curve, historically a precursor to economic slowdown.

The Fed faces a potential trilemma if inflation remains elevated while labor market conditions weaken, creating difficult trade-offs between supporting employment and containing price pressures.

Slightly softer headline inflation provides a supportive backdrop for fixed income. Treasury yields declined following the release, and further disinflationary trends could drive additional yield compression.

The ongoing defensive rotation in equities favors consumer staples, utilities, and healthcare sectors that demonstrate resilience during periods of policy uncertainty.

The gap between pre-CPI market weakness and post-CPI stability suggests opportunities for tactical positioning around inflation data releases.

The January 2026 CPI data presents a nuanced picture for monetary policy decision-making:

• Core CPI MoM:
  +0.3% (largest acceleration since August 2025)
• Core CPI YoY:
  2.5% (in-line with expectations)
• Headline CPI YoY:
  2.4% (below expected 2.5%)
• Fed Funds Rate:
  Held at 3.50%-3.75% as of January 28, 2026
• Market-Priced Rate Cut:
  First expected in July 2026

The data reinforces that while headline inflation has moderated, core services inflation remains persistent at the Federal Reserve’s 2% target level without clear downward trajectory. This creates uncertainty for policy normalization and suggests the Fed will maintain a cautious approach, monitoring labor market conditions alongside inflation trends before adjusting policy stance.