Inflation Data Supports Optimism as Consumers Adapt

The Consumer Price Index (CPI) rose 2.4% year over year in January, with a monthly increase of 0.2% on a seasonally adjusted basis.

Excluding food, shelter and energy, prices increased 2.1% over the year. These figures reinforce a pattern that has gradually emerged over recent months: inflation remains present, yet its pace is increasingly restrained.

Essential Costs Show Signs of Stabilization

Prior PYMNTS Intelligence analysis had consistently underscored the disproportionate burden of essential expenses. Earlier research revealed that core categories such as housing, food and bills consumed the majority of income for large segments of households. As PYMNTS CEO Karen Webster observed in earlier reporting, consumers earning less than $50,000 annually were allocating significant slices of their paychecks just paying for food (25%), housing (37%) and monthly bills (13%). That framework captured the structural challenge consumers faced when inflation was accelerating most sharply in non-optional categories.

Against that backdrop, January’s CPI report suggests emerging stabilization in several critical areas. Energy prices declined 1.5% during the month and edged down 0.3% over the past year. While energy costs have historically been volatile, sustained moderation can have an outsized effect on household budgets given the role of transportation and utilities in essential spending.

Food prices, another cornerstone of household economics, showed comparatively modest movement. Food and beverages rose 0.2% in January and 2.8% year over year. Food at home increased 2.1% annually. Within grocery categories, fruits and vegetables rose 0.1% during the month, while egg prices declined 7%. These figures signal a degree of normalization after several years of pronounced food price volatility.

Shelter costs — long the dominant driver of inflation persistence — remain elevated but display slower monthly growth. Shelter prices rose 3% over the past year, increasing 0.2% in January. Rent of primary residence climbed 2.8% year over year, while owners’ equivalent rent increased 3.3%. Although these gains continue to exceed headline inflation, the absence of sharper acceleration suggests that housing-related pressures may be gradually easing rather than intensifying.

Inflation Remains Stubborn in Services

Inflation’s moderation is not uniform. Several service-oriented categories continue to register elevated price growth. Food away from home increased 4% over the past year, reinforcing the persistent cost pressures embedded within labor-intensive sectors. Medical care services rose 3.9% year over year, highlighting continued upward pressure in healthcare expenditures. Utility-piped gas prices also rose 3.7% in January.

These pockets of persistence underscore an important nuance in the inflation narrative. Goods-related inflation has shown clearer deceleration, while services inflation — often more closely tied to wages and structural cost dynamics — continues to exert pressure.

Consumers Deploy Financial Levers

In parallel with moderating inflation, PYMNTS Intelligence data suggest consumers are increasingly relying on flexible payment mechanisms to manage household cash flow. The Pay Later Ecosystem Report indicates that installment plans and buy now, pay later (BNPL) products are becoming embedded within everyday financial management rather than confined to episodic purchases.

The data show that 31% of consumers made purchases using credit card installment plans in the preceding three months, while 14% used BNPL. Among millennials and bridge millennials, adoption rates were notably higher, with 42% of bridge millennials utilizing installment structures.

Crucially, the research challenges simplified interpretations of pay-later usage. As the report notes, “the choice to pay interest isn’t necessarily a sign of financial stress.” Instead, installment mechanisms increasingly function as budgeting tools, enabling consumers to smooth expenses, align payments with income cycles and preserve liquidity.

A Measured but Constructive Outlook

Taken together, January’s inflation data and consumer finance trends suggest an environment defined less by acute disruption and more by gradual recalibration. Inflation has not disappeared, particularly within shelter and services. Yet the broader trajectory reflects moderation across essential categories that most directly shape household economics.

Consumers, for their part, continue to adapt. Through spending prioritization, credit utilization and installment structures, households are actively reorganizing financial behavior to accommodate a still-elevated price environment. Inflation dynamics are easing, but demand for flexibility, predictability and payment control remains firmly embedded within consumer expectations, and their daily practices.