The U.S. annual inflation rate rose for the second straight month as shelter and food costs added to price pressures last month.
According to the Bureau of Labor Statistics (BLS), the November annual inflation rate climbed to 2.7 percent from 2.6 percent in October.
The consensus forecast, according to FactSet Insights, was 2.7 percent.
The consumer price index (CPI) jumped 0.3 percent monthly, up from 0.2 percent in the previous month.
Core inflation, which excludes the volatile energy and food categories, was unchanged at 3.3 percent and mirrored economists’ expectations. The core CPI swelled by 0.3 percent from October to November, in line with market estimates.
Food and shelter costs were the main drivers of the higher inflation report.
The food index advanced 0.4 percent, with supermarket prices surging 0.5 percent. Four of the six major grocery store food group indexes rose last month, led by meats, poultry, fish, and eggs (1.7 percent).
The various proteins have rocketed in the last month, such as beef and veal (3.1 percent), ham (3.9 percent), pork chops (3.6 percent), and eggs (8.1 percent).
Additionally, the food away from home index ticked up 0.3 percent.
Shelter, meanwhile, rose 0.3 percent and is up 4.7 percent from the same time a year ago.
Even as economic observers and the monetary authorities expected lower costs by now, the shelter index has been stubbornly high and has remained elevated for nearly three years.
“Shelter costs continue as the primary culprit in elevated inflation levels. Any improvement in shelter inflation will carry a lot of weight – and be long overdue,” said Greg McBride, the chief financial analyst at Bankrate. “Shelter costs contributed over 50% of October’s increase in CPI and more than 65% in the year-over-year increase in core CPI.”
Industry experts suggest that there could be relief on the way.
Housing market conditions are improving so much for tenants that it is tilting in favor of renters, says Sheharyar Bokhari, the senior economist at Redfin.
“Renters in areas where construction has boomed are in a sweet spot right now. Affordability is improving as rents fall and wages rise, and there is increased choice with more and more new apartment buildings opening,” said Bokhari. “As construction starts to slow, rents will eventually tick back up, but 2025 is shaping up as a renter’s market with potential for the affordability gap between buying and renting to widen.”
Meanwhile, motorists and households have been given an early Christmas gift through lower gasoline and electricity prices.
The energy index edged up just 0.2 percent and is down 3.2 percent year-over-year. Gasoline increased 0.6 percent but has plunged more than 8 percent from a year ago. Electricity costs dipped 0.4 percent and is up 3.1 percent from the previous 12-month span.
Indeed, American Automobile Association (AAA) data show that the average price for a gallon of gasoline is lower than it was a year ago: $3.02 compared to $3.15.
Services inflation is still high, holding steady at 4.7 percent last month. On a year-over-year basis, transportation and medical care services have soared 7.1 percent and 3.7 percent, respectively.
Core CPI is expected to be 3.3 percent.
Market Reaction
Stocks kept their pre-market gains intact as investors were relieved that inflation did not top market estimates. The leading benchmark indexes were up as much as 0.5 percent heading into the opening bell.U.S. Treasury yields were mixed, with the benchmark 10-year yield little changed at 4.21 percent. The two-year yield fell below 4.12 percent while the 30-year bond inched higher to 4.42 percent.
The U.S. Dollar Index (DXY), a gauge of the greenback against a weighted basket of currencies, stayed in positive territory after the CPI data. Year-to-date, the DXY has rallied 5.1 percent.
Prior to the latest CPI figures, investors overwhelmingly expected the Fed to cut interest rates by 25 basis points at next week’s Federal Open Market Committee (FOMC) policy meeting.
Despite the upward trend in inflation, it does not necessarily mean it is time for the Fed to panic, says David Miller, the co-founder and chief investment officer at Catalyst Funds.
“Although the previous target was 2%, Jay Powell has indicated he is comfortable with inflation closer to 3%,” Miller said in a note emailed to The Epoch Times. “At 2.7%, there’s little concern about inflation being out of control.
“If Powell’s goal were strictly 2%, the Fed likely wouldn’t cut rates at this level, but a 2.7% CPI and 3.3% core figure, particularly with GDP growing faster, doesn’t signal a significant issue.”
Chris Zaccarelli, the CIO for Northlight Asset Management, says the Fed will keep easing policy as inflation remains below 3 percent.
“The headline CPI was consistently above 3 percent in the beginning of the year and now it is consistently below 3 percent, so despite the fact that the series is a little noisy from month-to-month, we believe the Fed is likely to look through these fluctuations and continue on their easing path,” Zaccarelli said in a note emailed to The Epoch Times.
January could be a tougher call, with traders betting a 70 percent chance of a rate pause.
While the rate-cutting cycle is expected to persist in 2025, market watchers and policymakers have debated whether the central bank will be as aggressive as initially thought or slow the rate reduction pace.
“Along this baseline path, it seems important to maintain policy optionality, and the time may be approaching to consider slowing the pace of interest rate reductions, or pausing to carefully assess the current economic environment, incoming information, and evolving outlook,” St. Louis Fed President Alberto Musalem said at a recent Bloomberg monetary policy conference.
If the Fed pulls the trigger on another quarter-point rate cut at the December policy meeting, the central bank will have lowered the federal funds rate by a full percent since it started the easing cycle in September.
