(Bloomberg) -- US 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 — which excludes food and energy costs — increased 0.3% for a fourth straight month, Bureau of Labor Statistics figures showed Wednesday. From a year ago, it rose 3.3%.
Economists see the core gauge as a better indicator of the underlying inflation trend than the overall CPI that includes often-volatile food and energy costs. The headline measure rose 0.3% from the prior month and 2.7% from a year before.
The S&P 500 opened higher and Treasury yields declined after the CPI figures.
Shelter costs, one of the most persistent sources of inflation in recent years, cooled from the previous month, but the category still accounted for nearly 40% of the overall advance.
“Especially given the slowing in shelter, this should be very comfortable for the Fed to lower policy rates 25 basis points 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%, 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%, the biggest advance since the start of last year.
Shelter Costs
Shelter prices, the largest category within services, advanced 0.3% in November after a 0.4% gain in the prior month. Owners’ equivalent rent as well as rent of primary residence — subsets of shelter — both edged up 0.2%, the smallest gains since 2021.
Excluding housing and energy, service prices rose 0.3% 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 price index — doesn’t put as much weight on shelter as the CPI, which is one reason why it’s trending closer to the Fed’s 2% target.
A government report on producer prices due Thursday will offer insights into categories that feed directly into PCE, including health-care services, airfares and portfolio management.
What Bloomberg Economics Says...
“November’s CPI report won’t do much to assuage growing anxiety within the FOMC that inflation’s progress back toward the 2% 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.”
— Anna Wong and Stuart Paul
For the full note, click here
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% 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 of 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.
--With assistance from Chris Middleton, Matthew Boesler, Maria Clara Cobo, Craig Torres and Carter Johnson.
(Adds Bloomberg Economics comment, graphic)
