Consumer prices rose at a faster annual pace in November, suggesting that inflation remains an issue for households and policymakers.
The Consumer Price Index showed a 12-month inflation rate of 2.7% after a 0.3% increase during the month, the Bureau of Labor Statistics reported Wednesday. The annual rate was 0.1 percentage point 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 reading was unchanged from a month ago.
All numbers were in line with Dow Jones estimates.
The readings come as Federal Reserve officials ponder what to do at their policy meeting next week. Markets strongly expect the Fed to cut its benchmark short-term borrowing rate by a quarter of a percentage point when the meeting concludes on December 18, but then it will skip January as it gauges the impact of successive cuts on the economy.
The report also boosted market expectations for a cut, with traders raising the odds to 99%, according to CME Group's FedWatch gauge. Downgrade odds also rose in January, reaching around 23%.
“Core inflation sets the stage for interest rate cuts at the Federal Open Market Committee meeting next week,” said Whitney Watson, global co-president and co-head of fixed income IT at Goldman Sachs Asset Management. “After today’s data, the Fed will leave for the holiday break still confident in the inflation slowing process and we believe it remains on track for further gradual easing in the new year.”
While inflation is a long way from the 40-year high seen in mid-2022, it is still above the Federal Reserve's annual target of 2%. Some policymakers in recent days have expressed frustration with the resilience of inflation and indicated that the pace of interest rate cuts may need to slow if more progress is not made.
If the Fed follows through with its decision to cut next week, it will have cut a full percentage point from the federal funds rate since September.
Most of the increase in November's CPI came from shelter costs, which rose 0.3% and were one of the most challenging components of inflation. Fed officials and many economists expect housing-related inflation to decline as new leases are negotiated, but the item has continued to increase each month.
A measure within the shelter component that asks homeowners what they can get for rent on their property rose 0.2%, as did the actual rent index. These are the smallest consecutive monthly increases since April and July 2021.
The Bureau of Labor Statistics estimates that the shelter component, which has a weight of about one-third in calculating the CPI, 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% month on month while new car prices rose 0.6%, reversing a 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 increased 0.2% but fell 3.2% year-on-year. In food, the measure of grains and bakery products fell 1.1% in November, the largest monthly decline in the history of the measure dating back to 1989, according to the Bureau of Labor Statistics.
The increase in the Consumer Price Index meant workers' average hourly earnings were essentially flat during the month when adjusted for inflation, but were up 1.3% from a year ago, the Bureau of Labor Statistics said in a separate statement.
