Inflation is up by 7.1% compared to last year

Consumer prices rose less than expected in November, and inflationary pressures eased more than economists had expected for the second month in a row.

The consumer price index (CPI) for November showed a price increase of 7.1% from last year and an increase of 0.1% from the previous month, the Bureau of Labor Statistics said on Tuesday. Economists had expected prices to rise 7.3% from last year and 0.3% month-on-month, according to data from Bloomberg.

On a “core” basis, which excludes the volatile food and energy components of the report, prices rose 6.0% yoy and 0.2% from the previous month. Consensus estimates called for a 6.1% annual increase and a 0.3% monthly increase in the core CPI value.

The report propelled U.S. stocks and sent Treasury yields lower as Wall Street weighed the implication of softer printing on Federal Reserve policy.

While the November data showed a modest slowdown in inflation, the cost of essential items and housing for US consumers remains stubbornly high and well above the Federal Reserve’s long-term price stability target of 2%.

The Fed has aggressively raised interest rates this year – from 0%-0.25% at the start of the year to 3.75%-4% today – in an effort to slow down the economy and curb rising prices brakes. The central bank is expected to raise the target range for its benchmark interest rate by another 0.50% tomorrow.

“Another downward inflation surprise not only confirms a decision by the Fed to slow the pace of interest rate hikes, but also raises hopes that the rise in inflation can actually be tamed within the next 12 months,” said Seema Shah, chief strategist at Principal Asset Management in comments emailed.

“Still, Powell will likely remain cautious in his remarks tomorrow,” Shah added, pointing to wage inflation due to a continued strong labor market that continues to be a problem for Fed officials.

The November jobs report published earlier this month showed nonfarm payrolls rose by 263,000, bringing the three-month average to a robust 272,000 and revising the moderation in average hourly wages. The labor force participation rate fell to 62.1%, suggesting that a significant number of vacancies remain — a factor that continues to exert upward pressure on wages.

“The difference between 5% inflation and 3% inflation next year lies in the Fed’s ability to further tighten the labor market, which will likely require further monetary tightening and absolutely no interest rate cuts,” Shah said.

WASHINGTON, DC - NOVEMBER 30: Jerome Powell, Chairman of the US Federal Reserve, speaks at the Brookings Institution, November 30, 2022 in Washington, DC.  Powell discussed the economic outlook, inflation and the job market.  (Photo by Drew Angerer/Getty Images)

WASHINGTON, DC – NOVEMBER 30: US Federal Reserve Chairman Jerome Powell speaks at the Brookings Institution. (Photo by Drew Angerer/Getty Images)

The Fed monitors “core inflation” more closely, which offers policymakers a more nuanced view of inputs such as housing. The overall CPI figure, on the other hand, has moved largely along with erratic energy prices this year.

The energy index fell 1.6% this month after rising 1.8% in October. The downshift was driven in part by a 2% drop in the petrol category of the measure after gas prices rose 4% in October.

While falling energy prices pushed headline inflation down last month, the CPI shelter category – which accounts for 30% of total CPI and 40% of core value – was the main contributor to the monthly increase across all items, offsetting the declines in energy indices. The cost of lodging rose 7.1% over the past year, nearly half of the overall increase in core CPI, according to the Bureau of Labor Statistics.

“Housing costs have a unique, symbiotic relationship with inflation,” Bright MLS chief economist Lisa Sturtevant said in a note.

In a speech last month at the Brooking Institution in Washington DC, Federal Reserve Chairman Jerome Powell emphasized that inflation in the housing market has been rising rapidly, while inflation in other core services has “fluctuated but showed no clear trend”.

Meanwhile, food prices rose by 0.5%, little changed from October’s 0.6% increase.

Elsewhere in the release, the used car and truck index fell 2.9%, the fifth consecutive drop for that section of the report. The cost of medical care also fell 0.5% in November, the same percentage decline as in October.

In contrast, the indices for communications, recreation, auto insurance, education and clothing all saw increases.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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