Inflation in the United States accelerated in November, with consumer prices rising 2.7% over the past year. Monthly, the consumer price index (CPI) increased by 0.3%, according to the Bureau of Labor Statistics (BLS).
Core inflation, which excludes volatile food and energy prices, held steady at 3.3% annually and 0.3% monthly. These figures came in line with expectations.
Markets are bracing for the Federal Open Market Committee (FOMC) meeting on December 18. Traders overwhelmingly predict a 25-basis-point rate cut, raising odds to 99%, according to CME Group’s FedWatch tool.
But, the Federal Reserve remains stuck between inflation that won’t quit and the risks of over-cutting rates. The odds for an additional cut in January crept up to 23%.
Shelter costs dominate CPI increases
Housing costs once again drove inflation higher in November. The shelter index, which accounts for about one-third of the CPI calculation, rose 0.3% for the month and 4.7% annually. The BLS reported that this component alone made up 40% of the total monthly CPI increase.
Within shelter, rents saw modest gains of 0.2%, with the smallest monthly increases in over two years. Owner-equivalent rent, which estimates what homeowners would pay to rent their own properties, also edged up by 0.2%.
Despite slight moderation, shelter inflation remains stubbornly high, with Fed officials pinning hopes on lease renegotiations to ease price pressures. However, the monthly uptick in rents has been relentless, fueling concerns that housing-related inflation may outlast other categories.
Vehicle prices flipped the script in November, reversing months of declines. Used vehicle prices jumped 2%, while new vehicle prices climbed 0.6%. These gains disrupted expectations for easing inflation in the goods sector and underscored potential stickiness in core inflation categories.
Economists warn that rising car prices could stall progress on overall disinflation. Food prices rose 0.4% for the month and 2.4% annually. Notably, cereal and bakery products recorded a historic monthly decline of 1.1%, the sharpest drop since the measure began in 1989.
Fed weighs rate cuts amid persistent inflation
The Federal Reserve finds itself in a tight corner. While inflation is well below the 40-year high reached in mid-2022, it remains above the central bank’s 2% target. Officials have already trimmed the federal funds rate by a full percentage point since September.
A December rate cut would be the Fed’s fourth reduction in as many months, using aggressive action to balance inflation control with economic stability.
Investors are already speculating about what 2025 might hold. But, analysts are cautioning against overestimating the Fed’s room for easing, pointing out that inflation has remained “sticky” in key categories like shelter and services.
As the Fed debates its next steps, political and economic pressures are mounting. Treasury Secretary Janet Yellen shared concerns about the potential impact of tariffs proposed by President-elect Donald Trump, warning that they could derail progress on inflation.
She said, “Tariffs could significantly raise costs to households and hurt competitiveness.” Wall Street, meanwhile, is keeping a close eye on Fed policy. Stock futures rose slightly after the inflation data was released, as markets interpreted the numbers as supportive of another rate cut.
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