As Friday’s inflation report nears, US core inflation is expected to fall to its lowest level in nearly five years.

Headline inflation is forecast to ease to 2.4% in January from 2.7% in December, the lowest in nine months. Core inflation, which excludes food and gas, is seen slipping to 2.5% from 2.6%, marking a five-year low, according to FactSet.

Every month, both headline and core prices are expected to rise 0.3%. If sustained, that pace could slow further progress in bringing inflation down.

Even with some cooling, prices remain about 25% higher than five years ago, keeping affordability a key concern. If inflation moves closer to the Federal Reserve’s 2% target, it could open the door for interest rate cuts later this year.

Inflation had peaked at 9.1% in 2022, cooled through 2023, and has since eased gradually. Economists expect further moderation in the second half of the year, helped by softer wage growth and easing demand pressures.

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