Inflation slowed again last month, more than expected, as the Federal Reserve raised interest rates at the fastest pace in decades.
The consumer price index (CPI) in November showed an increase of 7.1% from a year ago and 0.1% in the month, the Bureau of Labor Statistics said Tuesday. Economists had expected prices to rise at an annual rate of 7.3% and 0.3% month-over-month, according to data from Bloomberg.
On a “basic” basis, which excludes the volatile food and energy components of the report, prices rose 6.0% year-on-year and 0.2% in November. Consensus estimates called for a 6.1% annual increase and a 0.3% monthly increase in the core CPI reading.
The report propelled U.S. stocks higher and lowered Treasury yields as Wall Street weighed the implication of weaker impressions on Federal Reserve policy. Contracts on the S&P 500 rose 2.8%, while futures on the Dow Jones Industrial Average soared more than 700 points. Nasdaq futures jumped 3.8%.
While November’s numbers showed a slight deceleration in inflation, the costs of essential goods and housing facing US consumers remain stubbornly high and well above the long-term price stability target of 2 % set by the Federal Reserve.
The Fed is watching “core” inflation more closely, which offers policymakers a more nuanced look at inputs like housing. The headline CPI figure, on the other hand, has largely moved in line with erratic energy prices this year.
The energy index fell 1.6% for the month after rising 1.8% in October. The slowdown was driven in part by a 2% decline in the gasoline category of the measure after gasoline prices rose 4% in October.
While falling energy prices dented headline inflation last month, the housing CPI category – which accounts for 30% of the headline CPI and 40% of the core reading – was the main contributor to the monthly increase in all elements and more than offset the declines in energy indices. The cost of housing rose 7.1% over the past year, accounting for nearly half of the total increase in the core CPI, the Bureau of Labor Statistics said.
“Housing costs have a unique symbiotic relationship with inflation,” Lisa Sturtevant, chief economist at Bright MLS, said in a note.
In a speech at the Brooking Institution in Washington DC last month, Federal Reserve Chairman Jerome Powell pointed out that housing inflation had risen rapidly, while inflation for other basic services “has fluctuated but showed no clear trend”.
Meanwhile, food prices rose 0.5%, little change from the 0.6% rise seen in October. Four of the six major food groups in grocery stores increased during the month.
Tuesday’s key inflation report – possibly the last major economic release of 2022 – also comes as the Federal Reserve begins its final meeting of the year. On Wednesday, members of the Federal Open Market Committee (FOMC) are set to raise interest rates by 50 basis points, a slowdown from the 0.75% increases announced in the past four meetings. .
Softer-than-expected inflation data is unlikely to prevent officials from raising their benchmark policy rate by the 0.50% expected at the end of their meeting or making another estimated hike of 75 basis points over the new year. But it may confirm recent signals from policymakers that the pace of increases is slowing.
“Another downward inflation surprise not only validates the Fed’s decision to slow the pace of rate hikes, but also raises hopes that soaring inflation may indeed be brought under control over the next 12 months. “said Seema Shah, chief global strategist at Principal Asset Management. comments sent by email.
“Still, Powell will likely maintain an element of caution in his comments tomorrow,” Shah added, pointing to wage inflation due to a still-strong labor market that still poses a problem for Fed officials.
The November jobs report released earlier this month saw nonfarm payrolls rise by 263,000, bringing the three-month average to 272,000 and revising the moderation in average hourly earnings. The participation rate fell to 62.1%, suggesting that there are still a significant number of job openings — a factor that continues to put upward pressure on wages.
“The difference between 5% inflation and 3% inflation next year is the Fed’s ability to further slow the labor market, which likely requires further monetary tightening and absolutely no rate cuts.” Shah said.
(This post is out of date. Please check for updates.)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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