The Labor Department’s Tuesday report showed that consumer prices rose by the least in 15 months. This means that the Federal Reserve can begin to decrease the size of its interest rate hikes on Wednesday.
U.S. consumer prices increased less than anticipated for November. The reason was lower fuel and healthcare costs, as well as the decrease in used cars and trucks. This led to the smallest annual increase in inflation in nearly a decade.
The Labor Department’s Tuesday report showed that consumer prices rose by the smallest amount in 15 months. This opens up the possibility for the Federal Reserve, which will begin reducing the size of its interest rate increases on Wednesday.
Economists anticipate a decrease in rental housing costs next year, even though Americans continue to face higher prices. The publication was made as U.S. central banking officials gathered for the final two-day meeting of the year.
In its most rapid rate-hiking cycle since the 1980s is expected to increase its benchmark overnight rate by 50 basis points on Wednesday. This would snap a string of four straight 75-basis point increases. Economists expected that the Fed would continue to tighten its monetary policy until at least the first quarter of 2023.
“The broad improvements raise expectations price pressures are decreasing, and the Fed will be able to ease as much next spring,” stated Will Compernolle, a senior economist at FHN Financial. “But it’s still not the ‘compelling” inflation improvement (Fed chair Jerome). Powell must convince the Fed to pause soon.
The consumer price index climbed 0.1% in October after an increase of 0.4%. Reuters polled economists and forecasted that the CPI would rise by 0.3%.
Gasoline prices dropped 2.0%. Electricity prices also fell while natural gas prices dropped. After an increase of 0.6% in October and December 2021, food prices increased by 0.5%.
Foodstuffs at home cost 0.5% more, driven by cereals, fruits, beverages, and non-alcoholic drinks. Meat, fish, and eggs are more expensive.
President Joe Biden was pleased with the drop in gasoline prices and moderate food costs in advance of the festive season.
Biden stated, “Make no mistake, the prices are still too high.” “But things will improve, and we are headed in the right direction.”
CPI rose 7.1% over the twelve months ending November. It was the lowest increase in CPI since December 2021. This follows a 7.7% increase in October. The June peak of the annual CPI was 9.1%, the highest increase since November 1981. The Fed’s 2% inflation target is still met.
Wall Street stocks rose, with the benchmark S&P500 (.SPX), hitting a three-month high. The dollar lost against a range of currencies. U.S. Treasury yields fell.
As last year’s huge increases are dropped out of the calculation, annual inflation is partially slowing. Demand is also being affected by Fed’s aggressive monetary policy. Less severe inflation readings have been added to the recent reports showing an improvement in inflation expectations for December.
The CPI increased by 0.2%, excluding volatile food components and energy. This was the 0.2% gain in core CPI, the largest since August 2021. This follows a 0.3% increase for October. Prices for used cars and trucks dropped 2.9%, limiting the core CPI for a fifth month.
Prices for new motor vehicles and household furniture were unchanged. After falling 0.4% in Oct, core goods prices fell 0.5% to 0.5% in April 2020. This is the first sign of good deflation. Services are gaining in popularity, and spending is shifting to them. Businesses have excess inventory and are forced to sell at a discount to attract cash-strapped holiday shoppers.
Services, the largest component in the CPI basket, saw 0.3% growth. Healthcare costs decreased by 0.5% due to lower prices for healthcare and related services. The prices of airline tickets fell as well as hotel and motel accommodations.
The rents, however, were still high. The owner’s equivalent rent, which measures the amount homeowners would pay for rent or earn from renting their property to others, rose 0.7% in October after an increase of 0.6%. Independent rent measures suggest that rental inflation has slowed. It could also be shown in the CPI statistics next year.
Core services increased by 0.4% and remained unchanged, excluding rental housing. This price category can be viewed as an indicator of inflation. However, prices for other services rose sharply last month because of increased education and communication services.
“This group is responsible for 30% of core CPI and underlines that with labor costs continuing at a strong pace, inflation will not be resolved quickly,” stated Sarah House, a senior economist from Wells Fargo in Charlotte.
The core CPI increased 6.0% over the past 12 months after rising 6.3% in October.
With 1.7 job opportunities for every unemployed person in October, wages are still high. This means that the Fed will continue tightening monetary policy and raising its rate above 5%.
Economists predict that the Fed will raise its estimate for Wednesday’s so-called “terminal rate” from the current 4.6%. The Fed has increased its policy rate by about 375 basis points this fiscal year, moving it from near zero to a range between 3.75% and 4.0%.
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