A shopper in the toy aisle of a Target store in Chicago. Photographer: Christopher Dilts/Bloomberg.
U.S. consumer prices rose at a firm pace in November that was in line with expectations, solidifying expectations for the Federal Reserve to cut interest rates next week. The so-called core consumer price index (CPI)—which excludes food and energy costs—increased 0.3 percent for a fourth straight month, Bureau of Labor Statistics (BLS) figures showed Wednesday. From a year ago, it rose 3.3 percent.
Economists see the core gauge as a better indicator of the underlying inflation trend than the overall CPI, which includes often-volatile food and energy costs. The headline measure rose 0.3 percent from the prior month and 2.7 percent from a year before.
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Shelter costs, one of the most persistent sources of inflation in recent years, cooled a bit from October to November, advancing 0.3 percent in November after a 0.4 percent gain in the prior month. Owners’ equivalent rent, as well as rent of primary residence—both subsets of the shelter category—edged up 0.2 percent, the smallest gains since 2021. Still, the shelter category accounted for nearly 40 percent of the overall advance in prices.
“Especially given the slowing in shelter [price increases], this should be very comfortable for the Fed to lower policy rates 25 basis points [bps] in December and continue cutting in 2025,” Citigroup Inc. economists Veronica Clark and Andrew Hollenhorst said in a note. While price pressures have subsided from a peak seen during the pandemic recovery, progress has leveled off more recently, prompting several central bankers to call for a more gradual pace of cuts going forward.
The CPI report showed goods costs—excluding food and energy—climbed 0.3 percent, the most since May 2023, fueled by household furnishings and apparel. That category had been a large driver of disinflation over the past year and a half. Prices for hotel stays increased by the most in two years, while car prices picked up as well, possibly reflecting a temporary boost in demand after two hurricanes. Grocery prices jumped 0.5 percent, the biggest advance since the start of last year.
Excluding housing and energy, service prices rose 0.3 percent for a second month, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index. That measure—known as the personal consumption expenditures (PCE) price index—doesn’t put as much weight on shelter as the CPI does, which is one reason why it’s trending closer to the Fed’s 2 percent target.
A government report on producer prices due Thursday will offer insights into categories that feed directly into PCE, including healthcare services, airfares, and portfolio management.
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What Bloomberg Economists Say...
“November’s CPI report won’t do much to assuage growing anxiety within the FOMC [Federal Open Market Committee] that inflation’s progress back toward the 2 percent target has stalled somewhat. But the worried parties are a minority, and the majority likely see the past few months of elevated readings as a road bump.”
Policymakers also pay close attention to wage growth, as it can help inform expectations for consumer spending—the main engine of the economy. A separate report Wednesday that combines the inflation figures with recent wage data showed real hourly earnings grew 1.3 percent from a year ago. Part of the reason why Fed officials have indicated they’re in no rush to lower borrowing costs is because they no longer believe the labor market to be a source of inflation.
Looking ahead, it remains to be seen to what extent President-elect Donald Trump’s agenda will weigh on the trajectory of inflation. While consumers’ views on the economy and their finances have improved since he sealed his return to the White House, many economists say some of his campaign promises could put additional pressure on inflation. Some businesses, for example, are considering raising prices in anticipation of higher tariffs.
A rate cut next week “will allow the Fed to be nimble enough to tackle potential disinflationary headwinds in the new year, including continued stickiness within shelter costs, as well as policy shifts on tariffs, taxes, as well as immigration,” said Noah Yosif, chief economist at the American Staffing Association.
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