In November, US consumer prices exhibited a slight uptick, underscoring the Federal Reserve’s commitment to maintaining heightened interest rates in the short term.
The core consumer price index (CPI), excluding food and energy costs, saw a 0.3% increase following October’s 0.2% rise, according to government data. On a year-over-year basis, it recorded a consecutive 4% uptick. Economists prefer the core metric for gauging inflation trends, reporting a 3.1% year-on-year increase for the overall CPI, which experienced a minor uptick after October’s stability.
This data underscores the inconsistent nature of taming inflation. While overall inflation has eased from historic highs, a robust labor market continues to drive consumer spending and economic growth.
As the Federal Reserve convenes for a two-day meeting, expectations lean toward maintaining current interest rates. Chairman Jerome Powell is anticipated to stress the necessity of a sustained decline in price growth before contemplating policy adjustments.
In response to the release, Treasuries reversed gains, stock futures declined, and the dollar partially recovered losses. Traders adjusted expectations for a potential interest-rate cut in March.
Bureau of Labor Statistics figures highlighted increases in rents, medical care, and motor-vehicle insurance, while used-car prices rose for the first time since May. Conversely, apparel and furniture costs experienced declines.
Shelter prices, constituting about a third of the overall CPI index, rose by 0.4%, offsetting a decline in gasoline prices. Sustained moderation in the shelter category is deemed crucial by economists to align core inflation with the Fed’s target.
Excluding housing and energy, services prices rose by 0.4% from October, surpassing the previous month, according to Bloomberg calculations. The Fed places emphasis on such metrics when assessing inflation trajectory, although they compute it based on a separate index.
While services prices increased, a continued decline in the prices of goods has provided relief to consumers. Core goods prices, excluding food and energy commodities, fell for the sixth consecutive month, matching the longest streak since 2003.
The Fed continues to monitor labor market conditions for signs of softened demand across the economy, particularly after a robust jobs report last week. Real earnings advanced 0.8% in November compared to the previous year, extending a trend where wage growth outpaces inflation.
Consumer optimism regarding inflation’s trajectory is growing, with near-term inflation expectations at their lowest levels since early 2021, supported by lower gas prices.
Looking ahead, the key question for policymakers isn’t merely when interest rates will be cut but the underlying reasons. According to a Bloomberg survey of economists, nearly three-quarters believe rate cuts would be in response to cooling inflation, while 28% attribute them to the onset of a recession.
