The November Consumer Price Index (CPI) showed that inflation progress stumbled slightly last month. Both headline and core monthly inflation quickened, while the Federal Reserve’s (Fed) favorite supercore inflation measure accelerated to one of the quickest paces this year. Today’s inflation data do not reinforce or justify the market’s expectations for near-term rate cuts and, instead, suggest that the Fed would be better served to take a more cautious, patient approach to policy pivot discussions.

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While annual headline inflation slid from 3.2% to 3.1% in November, the month-on-month number rose from 0.0% to 0.1%, above consensus expectations. Core CPI (which excludes food and energy) rose by 0.3% month-on-month, up from 0.2% last month, bringing the annual measure to 4.0%. Core inflation is still twice the 2% Fed target, suggesting that expectations for a near-term policy pivot are premature.

Within core CPI, core goods inflation fell for a sixth consecutive month. Used car prices rose in November, while new car prices edged down slightly. Notably, apparel prices dropped 1.3%, the largest decline since May 2020, suggesting that meaningful discounting was required to attract shoppers last month.

Much of the strength in core inflation stemmed from the services segment, with prices rising 0.4% month-on-month in November. Shelter inflation, which consists mainly of rents and owners’ equivalent rents, continued to apply upward pressure on core services inflation. Note that the slowdown in rents a year ago should lead to a waning in shelter costs, but that has yet to materialize.

Core services ex-housing inflation, often referred to as supercore inflation, rose 0.4% in November, up from 0.2%, suggesting some concerning stickiness in the data. If anything, this measure calls for continued caution from the Fed.


Today’s CPI report suggests there isn’t enough inflation deceleration to justify the market’s current expectations for a near-term policy pivot, particularly when the labor market is still so solid. All eyes will now turn to the FOMC meeting tomorrow where, if the Fed is truly data dependent, it should push back against the market’s pricing for near-term rate cuts. Our expectation is that clear labor market softness will need to emerge before the Fed can feel sufficiently confident to ease rates, likely not until mid-next year.

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