Headline masks lingering inflation

February 13, 2026

The consumer price index (CPI) rose 0.2% in January, the same as in December. That translates to a 2.4% increase from a year ago, the coolest pace since May 2025. However, disruptions due to the government shutdown late last year have suppressed year-over-year measures. No data was collected for October, which means that many prices increases were zeroed out, while the survey for November was limited to the last two weeks of the month when holiday promotions dominated.

Food prices advanced 0.2% both away and at home. Restaurants have been eating some of their costs as consumers have become fatigued with fees added to their bills. Many restaurants now include a tip for waitstaff in their bills because diners stopped leaving tips during the pandemic and its aftermath.

Energy prices dropped 1.5% on lower fuel costs. Electricity prices receded a bit, while natural gas prices jumped when unusually cold winter weather blanketed much of the South and East coast during the latter part of January and into February.

Electricity cooled a bit but remained elevated, rising 6.3% from a year ago. Natural gas prices are getting an extra bump due to data center construction and the stress it is causing the energy grid in local markets.

Even data centers that have dedicated natural gas power sources are bidding up the cost of natural gas, as they require even more natural gas than if they were to tap into local grids. Standalone power sources are less efficient than grids which pushes up the demand for natural gas.

Natural gas prices gained 9.8% from a year ago in January and are poised to move considerably higher over the course of the year. My contacts in the oil sector are expecting a 10-15% additional increase in the cost of natural gas this year.

The core CPI, which strips out food and energy, rose 0.3% in January, a slight acceleration from the 0.2% pace in December. That translates to a 2.5% increase from a year ago, a tick lower than the 2.6% pace of December, but the same caution goes for the core when it comes to disruptions due to the government's shutdown.

Shelter costs continued to cool. Rents have rolled over, while housing appreciation has cooled significantly in recent months. Some of that is due to disruptions to the data from the shutdown; the remainder reflects shifts we have seen in those costs, which show up as a lag and should provide a headwind for inflation during the rest of the year.

Hotel room rates fell after surging in December. Winter storms in vacation destinations in the South likely contributed to that weakness as travel was disrupted.

We have seen travel from abroad crater and the trade surplus in travel and tourism become a trade deficit, post-pandemic. Bookings for the World Cup are up and should alleviate some of that weakness. Luxury vacations are faring much better than economy vacations.

Goods prices excluding energy jumped 0.4%, double the pace of December. Goods prices added 1.6% from a year ago, which is the fastest pace since September 2023. Everything from apparel prices to furniture, laundry equipment and housekeeping supplies picked up. Even televisions jumped in price during the month.

Vehicle prices rose, but most vehicle producers have absorbed the effects of tariffs, which have taken a larger toll on margins and employment. Used vehicle prices are expected to get a bump from expansions to tax cuts, which will show up as a surge in tax refunds as we move into Spring.

The super core services measure of inflation, which strips out shelter costs, accelerated. It rose 0.3% in January, an uptick from the 0.2% pace of December. That translates to a 3.4% increase from a year ago. The service sector has been stuck in that range since early Fall and is still running a full percentage point hotter than prior to the pandemic. That is a figure that the Federal Reserve has been watching, hoping it would cool. 

The rise in service sector inflation was broad-based, from airline fares to transportation fees, except for shipping. Healthcare costs moved up. However, the price of health insurance fell, which does not look correct.

Home healthcare, which includes in-home elder care, soared again. It jumped 2% during the month and rose nearly 13% from a year ago, the third fastest annual pace on record. That is an area where immigrants play an outsized role in filling jobs.

The administration has issued more tariff threats since the start of the year. Actual actions on tariffs have gone in the other direction, with the administration backing off on tariffs and issuing more waivers. We have seen efforts to unstack tariffs, which have made domestic production more expensive than imports. The vehicle sector was hit hardest, which is the opposite of the intent.  Those problems are finally being addressed.

The last hurdle is the recent moves in the yen and the won, which could ameliorate the effect of tariffs on Japanese and South Korean imports. That represents another hurdle for domestic vehicle producers who have been reluctant to raise prices due to the blow such increases could mean for demand. New vehicle prices crossed the $50,000 mark last Fall, which along with high interest rates, is limiting new vehicle purchases to all but the most affluent of households. All cash purchases have risen in recent years.