Inflation Slowdown Is a Good Sign for the Economy

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Inflation cooled last month, but in many areas, consumers may not be feeling that relief. Plus, how does a billionaire spend his money? Documents from the Epstein files offer a rare look into one of those billionaires, Leon Black.

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And the Department of Homeland Security seems likely to shut down overnight. What could that mean for you? It's Friday, February 13th. I'm Alex Ossola for The Wall Street Journal. This is a PM Edition of What's News, the top headlines and business stories that move the world today.

A new report out today from the Labor Department shows that annual inflation slowed more than expected in January, dropping to 2.4% from 2.7% the month before. That follows the better-than-expected January jobs report from earlier this week. These are promising numbers, but does that mean the economy is doing as well as it seems? WSJ Chief Economics Commentator Greg Ip is here to discuss. Greg, for the past few months there have been these fears swirling around that the Trump administration's tariffs will lead to broader inflation. Does this data ease that concern?

Greg Ip (1:47)

We do see evidence of tariffs in this data. We see, for example, the price of goods if you exclude energy and use cars. We're up fairly sharply by one of their highest rates in a year or two. We see it in things like the prices of appliances, furniture, new cars. That would be consistent with tariffs being passed through. However, we do not see that tariff pressure spreading more broadly into overall inflation. Energy prices are down a fair bit, specifically gasoline. That went down a lot last month. Price of housing and rent has been slowing fairly significantly. A very large supply of new apartments came along in the last few years putting downward pressure on rents.

So, I think the overall picture you get here is that, yes, some continued pressure from tariffs, but overall a relatively encouraging picture for inflation.

Alex Ossola (2:37)

Everyone's been talking about affordability. So, for people in real life, does this feel like lower inflation?

Greg Ip (2:44)

Well, the problem with the whole affordability argument is that nobody is consistent on exactly what it means. If you go and ask the average person out there, they still say an apartment costs too much to rent, and a house costs too much to buy. And what they really mean is they actually want those prices going down. They don't want them just going up more slowly. So, affordability is very much in the mind of the beholder. We've seen a big disconnect between what we're seeing on inflation data, which has been consistently becoming more benign in the last year or two, and people's concerns about the cost of living, which we meet very concerning.

Alex Ossola (3:16)

The 2.4% inflation number from January is still above the Fed's 2% target. But this lower inflation, more jobs created, as we saw from the report earlier this week, is this the soft landing for the economy that the Fed had been angling for?

Greg Ip (3:30)

I think it's certainly going in that direction. Now, there is a technical question here, which is going to bore most of our readers to death, but I'm going to raise it anyway, because you did bring up the Federal Reserve, and so there's a lot of technical stuff involved. The inflation that the Federal Reserve targets relates to a different measure that they call the Price Index of Personal Consumption Expenditures. And that inflation number has been running somewhat above the CPI number. On the other hand, today's inflation number suggests that if they were in the mood to cut rates, maybe it's not a crazy thing to think about. But I would emphasize it's only one month's data. And there are reasons that we'll see some of these positive news possibly reverse in coming months. I've learned not to make too many high conviction predictions based on one month's data.

Alex Ossola (4:11)