The November Consumer Price Index report showed that inflation ticked up slightly in November—a signal that the Federal Reserve’s battle to bring down price pressures in the economy is not yet over.
The Bureau of Labor Statistics reported Wednesday that the CPI rose 2.7% in November compared with the same month last year—an uptick from October’s 2.6% rate—and 0.3% compared with October. Core CPI (which excludes volatile food and energy costs) rose 3.3% on an annual basis and 0.3% on a monthly basis.
The data comes ahead of the Fed’s final two-day meeting of 2024, with its decision on interest rates due Dec. 18. Central bankers began cutting rates in September, and they’re widely expected to reduce interest rates by 0.25% next week. But analysts say inflation remaining sticky could prompt the Fed to think twice about a December cut.
“We think today’s data will ignite a contentious debate in the Fed’s December meeting on whether to cut rates,” says Morningstar chief US economist Preston Caldwell. A premature rate cut risks derailing months of progress in reducing inflation, but rates staying too high for too long could damage the labor market and economic growth.
CPI vs. Core CPI
Source: Bureau of Labor Statistics. Data as of Nov. 30, 2024.
November CPI Report Key Stats
- CPI increased 0.3% for the month after rising 0.2% in October.
- Core CPI climbed 0.3% after rising by the same amount in October.
- CPI increased 2.7% year over year after increasing by 2.6% the prior month.
- Core CPI rose 3.3% from year-ago levels after increasing by the same amount in October.
Caldwell says November’s data translates to inflation remaining above the Fed’s target as measured by the Personal Consumption Expenditures Price Index. “Core CPI came in at 0.31% month over month, which we think points to core PCE coming in around 0.24%-0.28% month over month. That would mark the third consecutive month with core PCE inflation running significantly above the rate [about 0.17%] consistent with a 2% annual rate of inflation,” he explains.
Food prices overall climbed 0.4% in November, compared with 0.2% in October, according to the report. Grocery prices increased 0.5%, while restaurant prices increased 0.3%. Gasoline prices rose 0.6% after falling 0.9% in October. Falling gas prices have put downward pressure on the overall inflation rate for the past few months.
Change in Selected CPI Components
Source: Bureau of Labor Statistics. Data as of Nov. 30, 2024.
Shelter Inflation Moderates
Shelter prices continued to rise, but at a slower pace than in October. “Up until today, the data was mostly pointing to housing being the overwhelming contributor to continued high inflation,” Caldwell says. Shelter costs climbed 0.3% in November after rising 0.4% in October.
“While it continues to appear that housing is the single biggest driver of high inflation, it does now appear that free-spending consumers (and the resilient overall rate of economic growth) are also playing a role,” Caldwell adds. “Importantly, while we know the housing factor will be temporary, the consumer-driven factor could be more enduring.” He points to rising prices for new and used cars, possibly caused by rising demand, as well as rising prices for other consumer categories like furniture.
Consumer Price Index
Month-over-month changes.
Source: Bureau of Labor Statistics. Data as of Nov. 30, 2024.
Will the Fed Cut Rates in December?
Even after a strong November jobs report and sticky inflation data, investors expect the Fed to cut interest rates this month. They see a 96.4% chance of a 0.25% cut next week, according to the CME FedWatch Tool. That would bring the target federal funds rate down to a range of 4.25%-4.50%—a full percentage point lower than its peak earlier this year.
Caldwell says the outlook is less certain: “Markets still seem to be pricing in an overwhelming probability of a cut, but we see the outcome as more of a coin flip.”
Federal-Funds Rate Target Expectations for December 18, 2024 Meeting
Source: CME FedWatch Tool. Data as of Dec. 11, 2024.
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