The annual rate of inflation slowed to 3.1 percent in November, down slightly from 3.2 percent in October.
Lower gasoline prices were mostly offset by increases in housing and other services, easing pressure on the Fed.
On a monthly basis, the measure rose 0.1 percent compared to October, according to Consumer Price Index numbers released Tuesday by the US Bureau of Labor Statistics.
This comes one day before the final monetary policy announcement for this year by the Federal Reserve.
The central bank is expected to hold interest rates steady for the third time in a row – but investors will look to inflation data for clues about when the Fed might start cutting interest rates next year.
The annual rate of inflation fell to 3.1% in November, down slightly from the 3.2% rate in October.
Markets are pricing in big rate cuts from central banks in 2024, and see there’s about a 50% chance the Fed’s first rate cut will come in March, according to the Chicago Mercantile Exchange’s Fedwatch tool.
While the headline number fell, the key measure the Fed closely monitors was more stubborn.
So-called core inflation – which excludes volatile food and energy – remained at 4 percent year-on-year, higher than expected after a 0.3 percent month-on-month increase.
Failure to decline in core inflation will reinforce the Fed’s reluctance to cut interest rates in the first part of next year.
“The Fed may now be marginally more likely tomorrow to try to undo market expectations for near-term interest rate cuts,” economist Andrew Hunter of Capital Economics wrote in a research note.
Olu Sunola, head of US regional economics at Fitch Ratings, said: CNN: This will have no measurable impact on tomorrow’s potential decision to keep interest rates steady, but it does provide the Fed with some ammunition to argue that interest rate cuts as early as March 2024 remain premature.
“The commodity and energy deflation remains the much-needed gift that keeps on giving. However, the acceleration of essential services inflation in both shelter and non-shelter services is a reminder that the sustained downward trajectory in essential services inflation that the Fed wants to see remains Unattainable.
The latest CPI numbers come a day before the Fed’s final monetary policy announcement for the year (pictured: Fed Chair Jerome Powell)
Stocks initially fell at the open on Tuesday as Wall Street examined the latest inflation data for clues about the Fed’s future moves. But by late morning they had recovered most of their losses.
The S&P 500, Dow Jones Industrial Average and Nasdaq were all in the green.
Economists surveyed by Dow Jones expected prices to remain steady during the month and for the annual rate to decline to 3.1 percent.
Shelter prices, which include rent and account for about a third of the CPI’s weight, rose 0.4 percent on a monthly basis, and 6.5 percent on a 12-month basis. The general food index also rose by 2.9 percent over the past year.
But lower energy prices helped keep inflation under control, falling 5.4% year-on-year through November.
The cost of gas fell by a significant 8.9 percent year-on-year, according to CPI data, and by 6 percent month-on-month, providing some relief to motorists at gas stations.
From a peak of $5 about a year and a half ago, the average price of gas has fallen to $3.15 a gallon as of Monday. According to AAA.
The cost of gas fell by a significant 8.9 percent year-on-year, according to CPI data, and by 6 percent month-on-month.
“With inflation rising at 3.1% over the past year, inflation continues to moderate but still has a long way to go on the journey toward the Fed’s 2% target,” said Mark Hamrick, chief economic analyst at Bankrate.
“If current trends continue, lower energy prices should put further downward pressure on inflation. Overall, food prices are not rising as much as they were before, which is different from lower food prices. The cost of shelter, Which everyone needs, fixed.
Hamrick added that although gas prices are down, households are keenly aware that prices have risen sharply compared to pre-pandemic levels.
Auto insurance was among the items that saw the highest price increases during the year, rising 19.2 percent through November.
The cost of vehicle maintenance and repair also increased by 8.5 percent, which directly hinders lower fuel prices for drivers.
The cost of preparing tax returns and other accounting services rose by 8.3 percent annually, and admission prices to sporting events increased by 16.4 percent year-on-year.
Baby food and infant formula prices also rose significantly during the year – 7.6 percent – and the cost of cigarettes increased by 8 percent.
Restaurant prices, classified as “eating away from home” on the index, rose 0.4 percent in the October-November period for the third month in a row, making them 5.3 percent more expensive than a year ago.
The cost of auto insurance rose year over year through November, while the cost of eggs fell, according to the latest Labor Department data.
In some good news for households, the price of eggs fell by 22.3% in the 12 months to November, and airfares fell by 12.1%.
The cost of home furnishings fell by 5.1 percent over the year, while the price of television sets specifically fell by 9.5 percent.
Shortly after the latest numbers were announced, President Biden said in a statement: “Today’s report shows continued progress in lowering inflation and lowering costs for American families.”
“Prices of a number of products have fallen over the past year from cars and gallons of gas to televisions, toys and many appliances to eggs and milk.
“Despite this progress, I know that many Americans still find many things unaffordable. That’s why I’m fighting to lower the costs of insulin and prescription drugs, health insurance premiums, and utility bills. I’m fighting to eliminate unwanted hidden fees Which can increase the value of hardworking Americans.
The mixed picture in Tuesday’s inflation report is likely to keep the Fed on track to leave its benchmark interest rate unchanged when its latest meeting ends on Wednesday.
Since March 2022, the Fed has raised interest rates 11 times, raising benchmark borrowing costs to their highest level in 22 years.
High interest rates have made mortgages, auto loans, business borrowing, and other forms of credit much more expensive.