Consumer prices rose at a faster annual rate in November, a reminder that inflation remains a concern for both households and policymakers.
The consumer price index showed a 12-month inflation rate of 2.7%, after rising 0.3% month over month, the Bureau of Labor Statistics reported Wednesday. The annual rate was 0.1 percentage points higher than in October.
Excluding food and energy costs, the core CPI was 3.3% on an annual basis and 0.3% on a monthly basis. The 12-month core value remained unchanged from the previous month.
All numbers were in line with Dow Jones consensus estimates.
The readings come as Federal Reserve officials ponder what to do at their policy meeting next week. Markets are heavily expecting the Fed to cut its key short-term lending rate by a quarter of a percentage point at the end of its meeting on December 18, but are then skipping January to gauge the impact of the successive rate cuts on the economy.
The report further solidified the market outlook for a cut, with traders raising the probability to 99%, according to CME Group's FedWatch gauge. The probability of a reduction in January also increased slightly and was around 23%.
“Inline core inflation paves the way for a rate cut next week [Federal Open Market Committee] meeting,” said Whitney Watson, global co-head and co-CIO of fixed income at Goldman Sachs Asset Management. “Based on today’s data, the Fed will enter the holiday break still confident about the disinflation process, and we believe it remains on track for further gradual easing in the new year.”
Inflation, while well below the 40-year high it reached in mid-2022, is still above the Fed's annual target of 2%. Some policymakers have expressed frustration in recent days with the resilience of inflation and suggested that the pace of rate cuts may have to slow if further progress is not made.
When the Fed cuts next week, it will have cut interest rates by a full percentage point since September.
Much of November's CPI rise was driven by housing costs, which rose 0.3% and was one of the most stubborn components of inflation. Fed officials and many economists expect housing-related inflation to moderate as new leases are negotiated, but the item has continued to rise each month.
A measure within the housing component that asks homeowners how much rent they could get for their properties rose 0.2%, as did the actual rent index. These are the smallest monthly increases since April and July 2021.
The BLS estimated that the “shelters” item, which weighs about a third in the CPI calculation, accounted for about 40% of the total increase in November. The Shelter Index rose 4.7% on a 12-month basis in November.
Used car prices rose 2% monthly while new car prices rose 0.6%, a reversal of the recent trend that has seen these items decline.
Elsewhere, food costs rose 0.4% month-on-month and 2.4% year-on-year, while the energy index rose 0.2% but fell 3.2% year-on-year. In food, grains and baked goods fell 1.1% in November, the largest monthly decline in the measure's history, dating back to 1989, according to the BLS.
The increase in the CPI resulted in workers' average hourly wages remaining essentially flat over the month, adjusted for inflation, but increasing 1.3% from a year ago, the BLS said in a separate news release.
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