November’s inflation data, released Wednesday, showed consumer prices rising as predicted, reinforcing the Federal Reserve’s likely decision to implement another interest rate reduction in December.
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The Consumer Price Index (CPI) increased 2.7% year-over-year in November, a slight rise from October’s 2.6% annual gain, according to the Bureau of Labor Statistics. This yearly increase aligned with economist forecasts. The index saw a 0.3% month-over-month increase, surpassing October’s 0.2% rise and meeting economists’ estimates. This marked the most significant monthly gain since April, following four consecutive months of 0.2% increases.
Core Inflation Remains Steady, Prompting Fed Consideration
Excluding volatile food and energy costs, core inflation climbed 0.3% month-over-month, matching October’s figure, and rose 3.3% year-over-year for the fourth consecutive month. This persistent elevation in core inflation raises concerns, but is not expected to deter the Fed from implementing a 25 basis point rate cut at the upcoming FOMC meeting. Higher costs for shelter, services like insurance and medical care, and a recent uptick in used car prices due to rebounding auction prices contribute to this sustained core inflation. While inflation has been decelerating, it remains above the Federal Reserve’s 2% annual target.
Trump’s Election Adds Complexity to Inflation Outlook
The presidential election outcome introduces further complexities to the inflation landscape. Some economists suggest a potential resurgence of inflation if certain campaign promises, such as high tariffs on imported goods, corporate tax cuts, and immigration restrictions, are enacted. These policies, considered potentially inflationary, could impact the Federal Reserve’s future interest rate decisions.
Market Reaction and Fed Expectations
Following the inflation report, markets continued to anticipate a 25 basis point rate cut at the upcoming Federal Reserve meeting, with the probability of a cut rising to 97% from 89% the previous day. The in-line inflation figures were well-received by the market. However, the persistent nature of inflation and the potential inflationary risks associated with the incoming administration’s policies are expected to make the Fed more cautious. Analysts predict a shift towards a more cautious approach by the Fed, potentially slowing the pace of rate cuts to every other meeting starting in January.
Shelter Inflation Moderates, Food Prices Remain Elevated
Key takeaways from the inflation report include a moderation in the shelter index, which rose 4.7% year-over-year (unadjusted), down from October’s 4.9% increase. Month-over-month, the shelter index rose 0.3%, compared to 0.4% in October. Shelter costs contributed significantly to the overall monthly inflation increase. Rent and owners’ equivalent rent (OER) both experienced a 0.2% increase from October to November, marking the smallest monthly gains since July 2021 and April 2021, respectively. Meanwhile, the energy index saw a 0.2% month-over-month increase after remaining stable in October. The food index showed a 2.4% year-over-year increase, with a 0.4% month-over-month rise, highlighting food as a persistent category for inflation. Egg prices notably surged 8.2% month-over-month after a 6.4% decline in October.
Other Notable Price Changes
Other indexes with significant monthly increases included recreation, education, personal care, and apparel. In contrast, the communication index declined 1% in November, following similar decreases in October and September.
