US inflation rises 2.7% YoY in November, logs highest gain in seven months; Wall Street awaits US Fed verdict
- US Inflation Report November 2024: US consumer prices rose to 2.7 per cent last month from a year ago, up slightly from 2.6 per cent in October. The rise was said to be in line with economists' expectations.
US Inflation Report November 2024: US inflation accelerated for a second straight month in November 2024, reporting the steepest gain in the last seven months amid higher food prices and other sectors. However, this didn't deter Wall Street from placing bets for another interest rate cut by the US Federal Reserve, with the policy verdict due next week. The data proved consumer prices rose slightly higher last month, the latest sign that price pressures in some sectors are elevated in the world's largest economy.
US consumer price index (CPI) rose to 2.7 per cent last month from a year ago, up slightly from 2.6 per cent in October. The rise was said to be in line with economists' expectations. Progress in lowering inflation toward the US central bank's two per cent target has virtually stalled, with the report from report from Bureau of Labor Statistics showing no improvement in the measure of underlying price pressures over the past four months.
US Inflation Report November 2024: Key Metrics
The CPI rose 0.3 per cent last month, the largest gain since April after advancing 0.2 per cent for four straight months, said the Labor Department's Bureau of Labor Statistics. Excluding volatile food and energy costs, so-called core prices increased 3.3 per cent, the same as in the previous month. On a monthly basis, the US core CPI rose 0.3 per cent by the same margin for a fourth straight month.
Over the past three months, the core CPI averaged a 3.7 per cent annualized rate. Economists see the core gauge as a better indicator of the underlying inflation trend than the overall CPI, which includes often volatile food and energy costs. Housing costs propped up the CPI. Several other indexes also increased, including food, energy, medical care, and recreation.
According to Reuters, there was some encouraging news despite the high inflation. Rents, one of the stickier components of inflation, rose slowest in nearly 3 1/2 years. The rise in motor vehicle insurance, another troublesome category, moderated. These factors slowed the increase in service inflation.
Despite the lack of progress in the inflation fight, investors took comfort from the moderation in the cost of rent and the fact that core inflation had not deteriorated. Though sharp increases for items such as groceries and hotel rooms increased overall inflation, those categories are often volatile.
The CPI report showed goods costs, excluding food and energy, climbed 0.3 per cent, the most since May 2023, fueled by household furnishings and apparel segments. According to Bloomberg, that category had been a large driver of disinflation over the past year and a half.
Also Read: US Fed rate cut outlook: Can Donald Trump’s return shape the US central bank’s interest rate path?
Food prices increased 0.4 per cent after rising 0.2 per cent in October. Grocery prices jumped 0.5 per cent, the biggest advance since the start of last year, an uncomfortable reminder for consumers that food prices remain a big drag on households' budgets.
Among the sharpest year-on-year increases was the cost of eggs, which surged by 37.5 per cent annually and 8.2 per cent monthly as the US battled avian flu. Egg prices in the US volatile for more than two years. Beef and nonalcoholic beverages also cost more. However, cereal and bakery products' prices fell 1.1 per cent, the most since the government started tracking the series in 1989.
Gas prices ticked up 0.6 per cent from October to November, ending a string of declines. Still, gas prices in the US are down more than eight per cent from a year earlier. The cost of piped gas surged by one per cent.
Shelter prices, the largest category within services, advanced 0.3 per cent in November after a 0.4 per cent gain in the prior month. Shelter costs, one of the most persistent sources of inflation in recent years, cooled from the previous month, but the category still accounted for nearly 40 per cent of the overall advance.
The cost of lodging away from home, including hotels and motels, jumped 3.7 per cent. That was the most since October 2022 and followed a 0.5 per cent rise in October. Rents increased 0.2 per cent, the smallest gain since July 2021, after rising 0.3 per cent in October.
Owners' equivalent rent, a measure of the amount homeowners would pay to rent or earn from renting their property, rose 0.2 per cent. That was the smallest gain since April 2021 and followed a 0.4 per cent increase in October.
The cost of motor vehicle insurance edged up 0.1 per cent. Airline fares rose 0.4 per cent after soaring 3.2 per cent in October. However, the cost of healthcare services increased by 0.4 per cent. The cost of services as a whole increased by 0.3 per cent and nudged up 0.1 per cent when excluding the rent of shelter.
Goods prices increased 0.4 per cent after remaining unchanged in October. They were boosted by higher prices for new motor vehicles and used cars and trucks. Used car prices jumped two per cent from October to November, while new car prices rose 0.6 per cent. Those increases might have been fueled by a surge in demand after Hurricane Helene destroyed existing cars in places like North Carolina.
The US consumer inflation rate slowed for much of this year, falling to 2.4 per cent year-on-year in September, before reversing course in recent months. Though inflation is now way below its peak of 9.1 per cent in June 2022, average prices are still 20 per cent higher than they were three years ago — a major source of public discontent that helped drive President-elect Donald Trump’s victory over Vice President Kamala Harris in November.
The back-to-back increases in headline inflation also add to the challenges the US Fed faces in returning inflation to its long-term target of two per cent, potentially slowing the pace of rate cuts over the coming months. That could pose a challenge for the incoming Trump administration, which made tackling inflation and the cost of living a top priority on the campaign trail.
Wall Street eyes another quarter-point rate cut by US Fed
Wall Street has almost fully priced in a quarter-percentage-point rate cut at the US Fed's December 17-18 policy meeting, according to CME Group's FedWatch Tool. Before the release of the inflation data, the odds were roughly 86 per cent. The relatively mild November increase will not likely be enough to discourage the officials from cutting their key rate by a quarter-point.
According to futures pricing tracked by CME FedWatch, the probability of a rate cut next week, as envisioned by Wall Street traders, rose to 98 per cent after Wednesday’s inflation report was released. However, some analysts still expect the Fed to be more cautious about cutting than markets expect.
While price pressures have subsided from a peak seen during the pandemic recovery, progress has levelled off more recently, prompting several central bankers to call for a more gradual pace of cuts. At the same time, economic growth has been robust, giving the US Fed an excuse to pause rate cuts in the coming months to see how its fight against inflation unfolds.
Last week, US Fed Chair Jerome Powell suggested that the Fed could slowly reduce its key rate while maintaining a healthy economy. “We’re not quite there on inflation, but we’re making progress,” Powell said. “We can afford to be a little more cautious.” Powell said the central bank is seeking to “recalibrate” its rate to a lower setting, one more in line with tamer inflation.
US Fed officials have clarified that they expect inflation to fluctuate along a bumpy path even as it gradually cools toward its target level. In speeches last week, several of the central bank’s policymakers stressed that inflation had already fallen so far that keeping their benchmark rate quite as high was no longer necessary.
In September, the US Fed slashed its benchmark rate, which affects many consumer and business loans, by a sizable half-point. It followed that move with a quarter-point rate cut in November. Those cuts lowered the central bank’s key rate to 4.6 per cent, down from a four-decade high of 5.3 per cent.
Typically, the US Fed cuts rates to try to stimulate the economy to maximize employment, yet not so much as to drive inflation high. However, the US economy appears to be in solid shape. It grew at a 2.8 per cent annual pace in the July-September quarter, bolstered by consumer spending. That has led some Wall Street analysts to suggest that the Fed doesn’t actually need to cut its key rate further.
The US Fed's focus has shifted more toward the labour market. Though job growth accelerated in November after being restricted by strikes and hurricanes in October, the unemployment rate rose to 4.2 per cent after holding at 4.1 per cent for two consecutive months. This will be the last US Fed rate decision before President Joe Biden, a Democrat, hands over the White House to incoming Republican Donald Trump.
Economists expect policymakers will signal fewer rate cuts in 2025 when they update their summary of economic projections next week. Though slower inflation is forecast for next year as rent costs cool further and the labour market slack grows, that could be offset by higher prices from tariffs on goods and mass deportations of immigrants that Trump has promised.
In September, the US Fed kicked off its monetary policy easing cycle to cut rates from a two-decade high. The benchmark overnight interest rate currently sits between 4.50 per cent - 4.75 per cent, down three-quarters of a percentage point from September, after hiking it by 5.25 percentage points between March 2022 and July 2023 to tame inflation.
With inputs from AFP, AP, Bloomberg, and Reuters
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Business NewsEconomyUS inflation rises 2.7% YoY in November, logs highest gain in seven months; Wall Street awaits US Fed verdict
First Published:11 Dec 2024, 10:02 PM IST
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