The annual inflation rate accelerates to 2.7% in November, as expected

Consumer prices rose at a faster annual pace in November, a reminder that inflation remains a problem for both households and policymakers.

The consumer price index showed a trailing 12-month inflation rate of 2.7% after rising 0.3% for the month, the Bureau of Labor Statistics reported Wednesday. The annual rate was 0.1 percentage point higher than that of October.

Excluding food and energy costs, the core CPI stood at 3.3% annually and 0.3% monthly. The 12-month baseline reading was unchanged from a month ago.

All numbers were in line with Dow Jones consensus estimates.

The readings come as Federal Reserve officials mull what to do at their monetary policy meeting next week. Markets strongly expect the Federal Reserve to reduce its benchmark short-term borrowing rate by a quarter of a percentage point when the meeting concludes on December 18, but will then skip January to gauge the impact successive cuts have had on the economy. economy.

The report further solidified the market’s outlook for a cut, with traders raising the odds to 99%, according to CME Group’s FedWatch measure. The odds of a reduction in January also increased, reaching around 23%.

“Online core inflation paves the way for a rate cut in the coming week [Federal Open Market Committee] meeting,” said Whitney Watson, global co-head and co-CIO of fixed income at Goldman Sachs Asset Management. “After today’s data, the Federal Reserve will go on vacation still confident in the disinflation process and we believe it is still ongoing for further gradual easing in the new year”.

While inflation is well below the 40-year high it hit in mid-2022, it remains above the Federal Reserve’s 2% annual target. In recent days, some policymakers have expressed frustration with the resilience of inflation and have indicated that the pace of rate cuts may need to slow if more progress is not made.

If the Federal Reserve follows through with a cut next week, it will have taken a full percentage point off the federal funds rate since September.

Much of November’s CPI increase came from housing costs, which rose 0.3% and have been one of the most persistent components of inflation. Federal Reserve officials and many economists expect housing-related inflation to decline as new leases are negotiated, but housing has continued to rise each month.

A measure within the housing component that asks landlords how much they could get in rent for their properties rose 0.2%, as did the actual rental rate. They are the smallest respective monthly increases since April and July 2021.

The BLS estimated that housing, which has approximately one-third weight in the CPI calculation, represented about 40% of the total increase in November. The housing index rose 4.7% over 12 months in November.

Used vehicle prices rose 2% month-over-month, while new vehicle prices rose 0.6%, reversing the recent trend that has seen those items decline.

Elsewhere, food costs rose 0.4% month-on-month and 2.4% year-over-year, while the energy index rose 0.2% but fell 3.2% year-on-year. Within foods, the measure of cereals and baked goods fell 1.1% in November, the largest monthly decline in the measure’s history, which dates back to 1989, according to the BLS.

The CPI increase meant that workers’ average hourly earnings remained basically stable during the month when adjusted for inflation, but increased 1.3% from a year earlier, the BLS said in a separate statement.