Consumer prices increased at a quicker annual rate in November, underscoring the persistent issue of inflation for both households and policymakers.
According to the Bureau of Labor Statistics, the consumer price index revealed a 12-month inflation rate of 2.7% following a 0.3% rise on a monthly basis. This annual rate was 0.1 percentage point higher than in October.
Excluding food and energy costs, the core Consumer Price Index (CPI) stood at 3.3% annually and 0.3% monthly. The 12-month core reading remained unchanged from the previous month.
All figures aligned with the Dow Jones consensus estimates.
These statistics come as Federal Reserve officials deliberate on their actions at the upcoming policy meeting. The market anticipates the Fed to reduce its benchmark short-term borrowing rate by a quarter percentage point at the conclusion of the meeting on December 18. However, they are expected to hold off on further cuts in January to assess the impact of previous reductions on the economy.
The report has reinforced market expectations for a rate cut, with traders increasing the likelihood to 99%, as per the CME Group’s FedWatch measure. The probability of a reduction in January also slightly rose to about 23%.
Whitney Watson, global co-head and co-CIO for fixed income at Goldman Sachs Asset Management, stated, “In-line core inflation clears the way for a rate cut at next week’s [Federal Open Market Committee] meeting.” She added, “Following today’s data, the Fed will depart for the holiday break still confident in the disinflation process, and we think it remains on course for further gradual easing in the new year.”
Although inflation has decreased from its 40-year high in mid-2022, it remains above the Fed’s 2% annual target. Some policymakers have expressed concerns about inflation’s persistence and suggested that the pace of rate cuts may need to slow down if substantial progress is not achieved.
If the Fed proceeds with a reduction next week, it will have lowered the federal funds rate by a full percentage point since September.
The rise in the CPI in November was primarily driven by increased shelter costs, which saw a 0.3% increase and have been a persistent factor in inflation. Fed officials and many economists anticipate a moderation in housing-related inflation as new rental agreements are negotiated, but the component has continued to rise monthly.
A subcomponent within the shelter category that gauges what homeowners could earn in rent for their properties increased by 0.2%, along with the actual rent index. These were the smallest respective monthly increases since April and July 2021.
The BLS estimated that the shelter component, which holds about a one-third weight in the CPI calculation, contributed to around 40% of the total increase in November. The shelter index rose by 4.7% on a 12-month basis in November.
Used vehicle prices surged by 2% monthly, while new vehicle prices went up by 0.6%, reversing the recent trend of declining prices for these items.
In other categories, food costs increased by 0.4% monthly and 2.4% annually, while the energy index rose by 0.2% but decreased by 3.2% on a yearly basis. Within the food category, the measure for cereals and bakery products dropped by 1.1% in November, marking the largest monthly decline in the measure’s history dating back to 1989, according to the BLS.
The uptick in the CPI meant that average hourly earnings for workers remained relatively stable for the month when adjusted for inflation, but rose by 1.3% compared to a year ago, as reported by the BLS in a separate release.
