Consumer prices in the U.S. saw their largest increase in November in seven months, yet the Federal Reserve is still anticipated to implement a third consecutive interest rate reduction next week in order to bolster a labor market showing signs of cooling.
Efforts to reduce inflation towards the U.S. central bank’s target of 2% have effectively stagnated, with Wednesday’s report from the Labor Department also indicating that there has been no progress in the underlying price pressure measurements over the last four months.
In spite of persistently elevated inflation rates, there was some positive news. Rents, known for their stubbornness in inflation calculations, increased at the slowest rate in almost 3-1/2 years. Additionally, the rise in motor vehicle insurance, another concerning category, has moderated. These developments have contributed to a deceleration in service inflation.
A continued cooling trend would be favorable for the inflation outlook, although the impending tariffs from President-elect Donald Trump’s administration present a potential risk.
“Some Fed officials may find comfort in the positive movement in services and housing inflation,” remarked Scott Anderson, chief U.S. economist at BMO Capital Markets. “However, the Fed will require further improvements on the inflation front in the upcoming months, if it hopes to maintain its strategy for a steady rate of additional cuts next year.”
According to the Labor Department’s Bureau of Labor Statistics, the consumer price index increased by 0.3% last month, marking the largest gain since April after four consecutive months of 0.2% increments.
A 0.3% rise in shelter costs, primarily from hotel and motel accommodations, was responsible for nearly 40% of the increase in the CPI. Shelter costs increased by 0.4% in October. The price for lodging away from home, which includes hotels and motels, surged by 3.7%, the highest since October 2022, following a 0.5% rise in the previous month.
Food prices climbed 0.4% after a 0.2% rise in October. Grocery store food prices soared 0.5%, with egg prices skyrocketing by 8.2% due to an avian flu outbreak.
Prices for beef and nonalcoholic beverages also increased. Conversely, the prices of cereals and bakery items dropped by 1.1%, the steepest decrease since the government began monitoring this data in 1989. Gasoline prices rebounded by 0.6%, while piped gas costs jumped by 1.0%.
For the 12 months ending in November, the CPI rose 2.7% following a 2.6% increase in October, aligning with economists’ expectations.
The annual inflation increase has significantly decelerated from its peak of 9.1% in June 2022. The Fed’s priorities have now shifted more toward the labor market. Although job growth picked up in November following significant disruptions caused by strikes and hurricanes in October, the unemployment rate inched up to 4.2%, after remaining at 4.1% for two consecutive months.
Excluding the more volatile food and energy sectors, the CPI rose by 0.3% in November, maintaining that margin for the fourth month in a row.
Rents grew by 0.2%, marking the smallest increase since July 2021, down from 0.3% in October. Owners’ equivalent rent, which reflects what homeowners would pay to rent their property, also rose by 0.2%, the smallest rise since April 2021, after a 0.4% rise in October.
“The residential rental prices reflected in the CPI may finally be showcasing the slowdown long indicated by real-time rent prices,” stated Kathy Bostjancic, chief economist at Nationwide. “This is a noteworthy development.”
Motor vehicle insurance costs increased marginally by 0.1%. Airline ticket prices rose 0.4% after a significant climb of 3.2% in October.
Meanwhile, healthcare service costs went up by 0.4%. Overall service costs inched up by 0.3% and rose by 0.1% when excluding shelter rent.
Goods prices saw an uptick of 0.4% following a stagnant October, spurred by rising prices for new motor vehicles and used cars, likely as residents in the Southeastern U.S. replaced vehicles damaged by hurricanes.
For the year ending in November, the core CPI advanced 3.3%, unchanged from October’s rate. Over the last three months, the core CPI averaged a 3.7% annualized increase.
Based on the CPI figures, economists have estimated that the core personal consumption expenditures (PCE) price index rose by 0.2% in November, following a 0.3% rise in October. It’s projected that core inflation will increase by 2.9% year-on-year after a 2.8% rise in October, partly due to adverse base effects.
