US Inflation Eases in November, Aligning with Fed Expectations



Key Takeaways

  • November CPI rose by 0.1%, with a yearly increase of 3.1%.
  • Core inflation, excluding food and energy, remains steady at 4%.

Inflation Trends and Federal Reserve’s Response

November witnessed a modest rise in inflation, with the consumer price index (CPI) inching up by 0.1% and marking a 3.1% increase from the previous year, as reported by the Labor Department. This figure aligns with the Dow Jones’ expectations, reflecting a continued downward trajectory from October’s annual rate of 3.2%. The core CPI, excluding the more volatile food and energy sectors, mirrored the anticipated rise of 0.3% monthly and maintained a 4% year-over-year increase.

Market Reactions and Policy Implications

These developments, while indicating progress, still hover above the Federal Reserve’s 2% inflation target. This gradual decline in inflation rates is pivotal for the Fed’s policy direction, with core inflation being a significant indicator of long-term trends. The market’s reaction to the report was muted, with major indexes showing slight negative shifts and a modest rise in Treasury yields. The Fed, currently in its two-day policy meeting, is expected to maintain steady interest rates, marking the third consecutive hold.

Detailed Breakdown of Inflation Components

The decline in energy prices, notably a 6% drop in gasoline, played a critical role in tempering inflation. Conversely, food prices saw a slight increase, primarily driven by a 0.4% rise in costs for food away from home. Shelter costs, a major component of the CPI, exhibited a 0.4% monthly increase, yet showed a gradual decrease from its peak earlier in 2023. In contrast, used vehicle prices rebounded with a 1.6% rise, and vehicle insurance surged by 19.2% compared to the previous year.

Impact on Household Expenses and Wages

Despite the declining inflation trend, prices for essential items remain elevated compared to pre-pandemic levels, with housing costs exerting significant pressure on many households. However, workers have seen a slight improvement in their purchasing power, with real average hourly earnings rising by 0.2% monthly and 0.8% annually.

Fed’s Future Monetary Policy Outlook

With the end of the Fed’s rate hike cycle in sight, the market anticipates a shift towards rate cuts, potentially commencing in May. Futures markets are predicting a more aggressive easing of up to 1.25 percentage points by the end of 2024. However, the CNBC Fed Survey suggests a more cautious approach, expecting about three rate cuts in quarter percentage point increments.


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